AUTHENTICATED ,
US. GOVERNMENT
INFORMATION ^
UNITED STATES NEGOTIATING OBJECTIVES FOR
THE WTO SEATTLE MINISTERIAL MEETING
HEARING
BEFORE THE
SUBCOMMITTEE ON TRADE
OF THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATDH]S
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
AUGUST 5, 1999
Serial 106-52
Printed for the use of the Committee on Ways and Means
66-092 CC
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2000
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, jR., Florida
NANCY L. JOHNSON, Connecticut
AMO HOUGHTON, New York
WALLY HERGER, California
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
WILLIAM J. COYNE, Pennsylvania
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM McDermott, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. McNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
KAREN L. THURMAN, Florida
LLOYD DOGGETT, Texas
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California
E. CLAY SHAW, jR., Florida
AMO HOUGHTON, New York
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JENNIFER DUNN, Washington
WALLY HERGER, California
JIM NUSSLE, Iowa
SANDER M. LEVIN, Michigan
CHARLES B. RANGEL, New York
RICHARD E. NEAL, Massachusetts
MICHAEL R. McNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
XAVIER BECERRA, California
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records
of the Committee on Ways and Means are also published in electronic form. The printed
hearing record remains the official version. Because electronic submissions are used to
prepare both printed and electronic versions of the hearing record, the process of converting
between various electronic formats may introduce unintentional errors or omissions. Such occur-
rences are inherent in the current publication process and should diminish as the process
is further refined.
CONTENTS
Page
Advisory of July 8, 1999, announcing the hearing 2
WITNESSES
Office of the United States Trade Representative, Hon. Susan Esserman,
Deputy United States Trade Representative 24
Ambrose, Kathleen A., Chemical Manufacturers Association 143
American Council of Life Insurance, Charles Lake 159
American Family Life Assurance Company Japan, Charles Lake 159
American Farm Bureau Federation, Dean Kleckner 94
American Federation of Labor and Congress of Industrial Organizations,
David Smith 154
American Forest & Paper Association, John Dillon 99
Arizona Department of Agriculture, Sheldon R. Jones 174
American Insurance Association, Charles Lake 159
Becerra, Hon. Xavier, a Representative in Congress from the State of Cali-
fornia 10
Cargill, Incorporated, Ernest S. Micek 60
Chemical Manufacturers Association, Kathleen A. Ambrose 143
Chiquita Brands International, Inc., Steven G. Warshaw 134
Chubb Corporation, Dean R. O’Hare 68
Coalition of Service Industries, Dean R. O’Hare 68
Dawson, Rhett, Information Technology Industry Council 169
Dillon, John, International Paper, and the American Forest & Paper Associa-
tion 99
Emergency Committee for American Trade, Ernest S. Micek 60
Health Insurance Association of America, Charles Lake 159
Information Technology Industry Council, Rhett Dawson 169
International Insurance Council, Charles Lake 159
International Paper, John Dillon 99
Jones, Sheldon R., Arizona Department of Agriculture 174
Kleckner, Dean, American Farm Bureau Federation 94
Lake, Charles, American Family Life Assurance Company Japan, the Amer-
ican Council of Life Insurance, America Insurance Association, Health In-
surance Association of America, International Insurance Council, and Rein-
surance Association of America 159
Lambert, Charles D., National Cattlemen’s Beef Association 138
Micek, Ernest S., Cargill, Incorporated and the Emergency Committee for
American Trade 60
Miller, Hon. Dan, a Representative in Congress from the State of Florida 15
National Association of Manufacturers, William Weiller 129
National Cattlemen’s Beef Association, Charles D. Lambert 138
National Wildlife Federation, Mark Van Putten 104
O’Hare, Dean R., Chubb Corporation, and Coalition of Service Industries 68
President’s Advisory Committee on Trade Policy and Negotiations, John E.
Pepper 55
Procter & Gamble Company, John E. Pepper 55
Purafil, Inc., William Weiller 129
Regula, Hon. Ralph, a Representative in Congress from the State of Ohio 13
Reinsurance Association of America, Charles Lake 159
Sandler, Gilbert Lee, Sandler Travis & Rosenberg, P.A., and the Washington
International Insurance Company 164
Smith, David, American Federation of Labor and Congress of Industrial Orga-
nizations 154
Van Putten, Mark, National Wildlife Federation 104
Warshaw, Steven G., Chiquita Brands International, Inc 134
Washington International Insurance Company, Gilbert Lee Sandler 164
hi
Page
Weiller, William, Purafil, Inc., and the National Association of Manufactur-
ers
Weller, Hon. Jerry, a Representative in Congress from the State of Illinois
Submissions for the Record
Ad Hoc WTO Round Processed Food Coalition: Bestfoods, Campbell Soup,
ConAgra, General Mills, Herbalife International, J.R. Simplot Co., Lamb-
Weston, National Food Processors Association, National Potato Council,
Nestle USA, Oregon Potato Commission, Pepperidge Farm, PepsiCo, Pet
Food Institute, Procter & Gamble, Ralston Purina, Tricon Global Res-
taurants, Welch’s, Wm. Wrigley Jr. Company, John F. McDermid, joint
letter
Aluminum Association, Inc., statement and attachment
American Crop Protection Association; American Forest and Paper Associa-
tion; American Plastics Council; Biotechnology Industry Organization;
Chemical Manufacturers Association; Chemical Specialties Manufacturers
Association; Coalition for Truth in Environmental Marketing Information;
National Association of Manufacturers; National Fisheries Institute; Na-
tional Foreign Trade Council; Soap and Detergent Association, New York,
NY; and U.S. Council for International Business, New York, NY; joint
statement and attachments
American Free Trade Association, Miami, FL, statement
American Iron and Steel Institute, statement
American Lands Alliance, Antonia Juhasz and Faith Campbell, statement
and attachments
American Sugar Alliance, James Wm. Johnson, Jr., joint statement
American Textile Manufacturers Institute, statement and attachments
Association of International Automobile Manufacturers, Inc., Arlington, VA,
statement and attachment
Black, Edward J., Computer & Communications Industry Association, and
Pro Trade Group, joint statement
Boyd, Robert T., Torrington Company, Torrington, CT, statement
Brown, Larry R., Timken Company, Canton, OH, letter
Bunden, Kenichi, Floral Trade Council, Haslett, MI, statement
Business Roundtable, statement
Business Software Alliance, Robert W. Holleymann II, statement
Campbell, Faith, American Lands Alliance, statement and attachments
Center for International Environmental Law, David R. Downes; National
Wildlife Federation, Jake Caldwell; Sierra Club, San Francisco, CA, Dan
Seligman; World Wildlife Fund, David Schorr; Friends of the Earth, Andrea
Durbin; Natural Resources Defense Council, Justin Ward; Greenpeace USA,
Scott Paul; Defenders of Wildlife, and Community Nutrition Institute, Rina
Rodriguez; American Lands Alliance, Antonia Juhasz; Consumer’s Choice
Council, Cameron Griffith; Earthjustice Legal Defense Fund, San Francisco,
CA, Martin Wagner; Institute for Agriculture and Trade Policy, Min-
neapolis, MN, Kristin Dawkins; and Pacific Environment and Resources
Center, Oakland, CA, Doug Norlen; joint letter and attachment
Center for Science in the Public Interest, Benjamin Cohen, statement
Chocolate Manufacturers Association, McLean, VA, Stephen G. Lodge, joint
statement
Cohen, Benjamin, Center for Science in the Public Interest, statement
Computer & Communications Industry Association, Edward J. Black, joint
statement
Consumer Federation of America, Arthur S. Jaeger, statement
Crawford, Bob, Florida Department of Agriculture & Consumer Services,
Tallahassee, FL, statement and attachments
DaimlerChrysler Corporation, statement
Defenders of Wildlife, statement
Distilled Spirits Council of the United States, Inc., statement
Dresser-Rand Company, The Woodlands, TX, statement
Federal Express Corporation, Memphis, TN, M. Rush O’Keefe, Jr., statement .
Floral Trade Council, Haslett, MI, Kenichi Bunden, statement
Florida Department of Agriculture & Consumer Services, Tallahassee, FL,
Bob Crawford, statement and attachments
Grocery Manufacturers of America, Mary Sophos, statement
Harvey, Pharis J., International Labor Rights Fund, statement
Hatano, Daryl, Semiconductor Industry Association, statement
Holleymann, Robert W., II, Business Software Alliance, statement
Intellectual Property Committee, statement
129
7
184
187
189
195
199
204
213
219
221
264
353
349
284
228
245
204
248
257
259
257
264
267
287
268
270
272
275
279
284
287
291
298
343
245
293
iv
IBC, Inc., John F. McDermid, joint letter
International Labor Rights Fund, Pharis J. Harvey, statement
International Mass Retail Association, Arlington, VA, statement
ITT Industries, White Plains, NY, Wingate Lloyd, joint statement
J.C. Penney Company, Inc., and National Retail Federation, joint statement ..
Jaeger, Arthur S., Consumer Federation of America, statement
Johnson, James Wm., Jr., United States Beet Sugar Association, and Amer-
ican Sugar Alliance, joint statement
Judge, Steve, Securities Industry Association, statement and attachments
Juhasz, Antonia, American Lands Alliance, joint statement and attachments .
Labor/Industry Coalition for International Trade, statement
Libbey Inc., Toledo, OH, Arthur H. Smith, statement
Lloyd, Wingate, U.S. Chamber of Commerce, and ITT Industries, White
Plains, NY, joint statement
Lodge, Stephen G., National Confectioners Association, and Chocolate Manu-
facturers Association, McLean, VA, joint statement
McDermid, John F., IBC, Inc., and Ad Hoc WTO Round Processed Food
Coalition: Bestfoods, Campbell Soup, ConAgra, General Mills, Herbalife
International, J.R. Simplot Co., Lamb-Weston, National Food Processors
Association, National Potato Council, Nestle USA, Oregon Potato Commis-
sion, Pepperidge Farm, PepsiCo, Pet Food Institute, Procter & Gamble,
Ralston Purina, Tricon Global Restaurants, Welch’s, and Wm. Wrigley Jr.
Company, joint letter
Micron Technology, Inc., Boise, ID, statement
National Confectioners Association, McLean, VA, Stephen G. Lodge, joint
statement
National Retail Federation, and J.C. Penney Company, Inc., joint statement ..
North Dakota Durum Wheat Farmers: Jerome Anderson, Ross, ND; Marshall
Craft, Stanley, ND; Louis Kuster, Stanley, ND; and Curt Trulson, Ross,
ND, statement
O’Keefe, M. Rush, Jr., Federal Express Corporation, Memphis, TN, statement
Pharmaceutical Research and Manufacturers of America, statement
PPG Industries, Inc., Pittsburgh, PA, statement
Pro Trade Group, Edward J. Black, joint statement
Quinn, Hon. Jack, a Representative in Congress from the State of New
York, statement
Ranchers-Cattlemen Action Legal Fund (R-CALF), Columbus, MT: Midland
Bull Test, Columbus, MT, Leo R. McDonnell, Jr.; Sullivan Kelley Farm,
Meeker, CO, Kathleen S. Kelley; R-CALF, Columbus, MT, John Lockie;
R-CALF, Miles City, MT, Jack McNamee; Herried Livestock Market, Inc.,
Herreid, SD, Herman Schumacher; Open Spear Ranch, Melville, MT, Den-
nis McDonald; R-CALF, Melville, M'T, Bill Donald; R-CALF, Big Timber,
MT, Chuck Rein; and R-CALF, Columbus, MT, John Patterson; joint state-
ment
Rubber and Plastic Footwear Manufacturers Association, statement and at-
tachment
Safe Alternatives for our Forest Environment, Hayfork, CA, Bill Welsch,
letter
Securities Industry Association, Steve Judge, statement and attachments
Semiconductor Industry Association, Daryl Hatano, statement
Smith, Arthur H., Libbey Inc., Toledo, OH, statement
Sophos, Mary, Grocery Manufacturers of America, statement
Timken Company, Canton, OH, Larry R. Brown, letter
Torrington Company, Torrington, CT, Robert T. Boyd, statement
U.S. Chamber of Commerce, Wingate Lloyd, joint statement
U.S. Integrated Carbon Steel Producers: Bethlehem Steel Corp., U.S. Steel
Group, LTV Steel Co., Ispat Inland Inc., and National Steel Corp., joint
statement
United States Beet Sugar Association, James Wm. Johnson, Jr., joint state-
ment
U.S. Virgin Islands, Government of:
Statement
Belair Watch Corporation, Hampden Watch Company, Inc., Progress
Watch Co., Unitime Industries, Inc., and Tropex, Inc., Joint statement .
Welsch, Bill, Safe Alternatives for our Forest Environment, Hayfork, CA,
letter
Page
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338
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V
UNITED STATES NEGOTIATING OBJECTIVES
FOR THE WTO SEATTLE MINISTERIAL
MEETING
THURSDAY, AUGUST 5, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:20 a.m., in room
1100, Longworth House Office Building, Hon. Philip M. Crane
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
( 1 )
2
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
FOR IMMEDIATE RELEASE Contact: (202) 225-1721
July 8, 1999
No. TR-13
Crane Announces Hearing on United States Nego-
tiating Objectives for the WTO Seattle Ministe-
rial Meeting
Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on Trade
of the Committee on Ways and Means, today announced that the Subcommittee will
hold a hearing on United States negotiating objectives for the upcoming World
Trade Organization (WTO) Ministerial. The hearing will take place on Thursday,
August 6, 1999, in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 a.m.
Oral testimony at the hearing will be from both invited and public witnesses. In-
vited witnesses will include Ambassador Susan Esserman, Deputy United States
Trade Representative. Also, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the Committee and
for inclusion in the printed record of the hearing.
BACKGROUND:
The Uruguay Round was the eighth round or series of multilateral trade negotia-
tions under the General Agreement on Tariffs and Trade (GATT). The agreements
reached at the end of 1994 during the Uruguay Round were noteworthy in that they
greatly expanded coverage of GATT rules beyond manufactured goods trade to in-
clude agricultural trade, services trade, trade-related investment measures, intellec-
tual property rights, and textiles.
One of the most visible accomplishments of this multilateral round was to estab-
lish the WTO to administer the GATT agreements and to settle disputes among
WTO members. The Uruguay Round agreement also calls for the resumption of ne-
gotiations by the year 2000 to further liberalize trade in agriculture and services,
as well as examine government procurement practices and enforcement of intellec-
tual property rights. The negotiations will begin formally at the WTO Ministerial
conference to be hosted by the United States in Seattle, Washington, from Novem-
ber 30 through December 4, 1999. It will be the largest trade event ever held in
the United States and will bring together representatives of the 133 member coun-
tries of the WTO. The members will consider the procedures and substance of the
so-called “built-in” WTO agenda, as well as other issues such as transparency and
possible reforms to the dispute settlement system.
In announcing the hearing, Chairman Crane said: “The Seattle Ministerial meet-
ing represents a much needed opportunity for U.S. workers and businesses. It holds
the promise of renewing momentum to reduce the continuing barriers facing U.S.
agricultural, goods, and services exports. It is important that Congress monitor the
development of United States negotiating objectives for the Seattle Ministerial, as
well as the adequacy of logistical and other preparations for this historic event.”
3
FOCUS OF THE HEARING:
The focus of the hearing will be to examine United States preparations for the
Seattle Ministerial Meeting. Testimony will be received on specific objectives for the
negotiations, the outlook for a successful meeting, and the anticipated impact of
launching a new round of WTO negotiations on jobs, wages, economic opportunity,
and the future competitiveness of U.S. manufacturers and service providers.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to Traci Altman
or Pete Davila at (202) 225-1721 no later than the close of business, Monday, July
26, 1999. The telephone request should be followed by a formal written request to
A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Rep-
resentatives, 1102 Longworth House Office Building, Washinrton, D.C. 20515. The
staff of the Subcommittee on Trade will notify by telephone those scheduled to ap-
pear as soon as possible after the filing deadline. Any questions concerning a sched-
uled appearance should be directed to the Subcommittee on Trade staff at (202)
225-6649.
In view of the limited time available to hear witnesses, the Subcommittee may
not be able to accommodate all requests to be heard. Those persons and organiza-
tions not scheduled for an oral appearance are encouraged to submit written state-
ments for the record of the hearing. All persons requesting to be heard, whether
they are scheduled for oral testimony or not, will be notified as soon as possible
after the filing deadline.
Witnesses scheduled to present oral testimony are required to summarize briefly
their written statements in no more than five minutes. THE FIVE-MINUTE RULE
WILL BE STRICTLY ENFORCED. The full written statement of each witness will
be included in the printed record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of time available
to question witnesses, all witnesses scheduled to appear before the Subcommittee
are required to submit 200 copies, along with an IBM compatible 3.5-inch diskette
in WordPerfect 5.1 format, of their prepared statement for review by Members prior
to the hearing. Testimony should arrive at the Subcommittee on Trade office, room
1104 Longworth House Office Building, no later than Tuesday, August 3, 1999. Fail-
ure to do so may result in the witness being denied the opportunity to testify in
person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Any person or organization wishing to submit a written statement for the printed
record of the hearing should submit six (6) single-spaced copies of their statement,
along with an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, with
their name, address, and hearing date noted on a label, by the close of business,
Thursday, August 19, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office Building,
Washington, D.C. 20515. If those filing written statements wish to have their state-
ments distributed to the press and interested public at the hearing, they may de-
liver 200 additional copies for this purpose to the Subcommittee on Trade office,
room 1104 Longworth House Office Building, by close of business the day before the
hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a witness, any written statement
or exhibit submitted for the printed record or any written comments in response to a request
for written comments must conform to the guidelines listed below. Any statement or exhibit not
in compliance with these guidelines will not be printed, but will be maintained in the Committee
files for review and use by the Committee.
1. All statements and any accompanying exhibits for printing must be submitted on an IBM
compatible 3.5-inch diskette in WordPerfect 5.1 format, typed in single space and may not ex-
ceed a total of 10 pages including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing record.
4
2. Copies of whole documents submitted as exhibit material will not be accepted for printing.
Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material
not meeting these specifications will be maintained in the Committee files for review and use
by the Committee.
3. A witness appearing at a public hearing, or submitting a statement for the record of a pub-
lic hearing, or submitting written comments in response to a published request for comments
by the Committee, must include on his statement or submission a list of all clients, persons,
or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the name, company, address,
telephone and fax numbers where the witness or the designated representative may be reached.
This supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being submitted for printing.
Statements and exhibits or supplementary material submitted solely for distribution to the
Members, the press, and the public during the course of a public hearing may be submitted in
other forms.
Note: All Committee advisories and news releases are available on the World
Wide Web at “HTTP:/AVWW.HOUSE.GOVAVAYS_MEANS/”.
The Committee seeks to make its facilities accessible to persons with disabilities.
If you are in need of special accommodations, please call 202-225-1721 or 202-226-
3411 TTDATTY in advance of the event (four business days notice is requested).
Questions with regard to special accommodation needs in general (including avail-
ability of Committee materials in alternative formats) may be directed to the Com-
mittee as noted above.
Chairman Crane. We are going to have a series of interruptions
today with a heavy legislative schedule, and so I think it is essen-
tial that we commence. Our first panel consists of our colleagues,
Jerry Weller, Xavier Becerra, Ralph Regula, Dan Miller and Jack
Quinn.
But before you fellows testify, I want to welcome everyone here
this morning. The Trade Subcommittee meeting today is to con-
sider the U.S. negotiating objectives for the WTO, World Trade Or-
ganization, ministerial meeting that will be held in Seattle, Wash-
ington, from November 30 until December 3 of this year, and the
Trade Subcommittee intends to be out there for part of that min-
isterial meeting before heading to the Far East.
Today, we intend to have an open give-and-take regarding what
U.S. priorities should be for this important meeting, the first of its
kind to be held in the United States. As my colleagues know, I am
a strong supporter of the WTO. I think I can speak for most of my
colleagues here when I say that we are fully supportive of achiev-
ing a successful launch of a new round of world trade negotiations
in Seattle.
A consensus seems to have emerged among our trading partners
that the new round should be concluded within 3 years, by the end
of 2002. While comfortable with the shorter timeframe, I recognize
that these will be tough negotiations given the intractable prob-
lems that the U.S. and other countries have with Europe and
Japan in the agriculture and other sectors.
Since its establishment in 1995, the WTO has functioned effec-
tively, aiding our efforts to ensure that job-creating U.S. exports
are receiving fair access to 134 nations around the world. As the
world’s greatest exporter, the best engine for our impressive eco-
5
nomic growth has been expanding international trade under the
oversight of the WTO.
Almost 12 million U.S. jobs are supported by exports. When we
increase exports in particular, we are increasing the number of
high-wage, high-tech jobs in cities and towns across America.
The U.S. wins with fair rules that are promoted by an institution
that has the moral authority to ensure that they are followed.
Americans instinctively understand principles of fair play, and I
believe overall support for the WTO will build as understanding
grows about how this institution promotes economic growth world-
wide. The high visibility of the meeting in Seattle creates a great
opportunity to expand appreciation of this important institution.
The dispute settlement mechanisms of the WTO have in general
worked in our favor. Of the cases brought by the U.S., we have won
or favorably settled 22 and lost only two. We must assure, however,
that our trading partners, particularly the European Union, come
into compliance quickly when the WTO rules against them. Despite
our tremendous record in the WTO, I am very concerned about the
recent decision against the U.S. foreign sales corporation provision.
We will hold a hearing in the Ways and Means Committee in the
fall to discuss this issue.
With that, I want to recognize the Ranking Member of the Sub-
committee and thank him for helping us assemble such a distin-
guished set of witnesses for our discussion today.
Mr. Levin.
Mr. Levin. Thank you, Mr. Chairman. And before I start with
my opening statement, I would like to apologize on behalf of I
would think all the Members and surely those on the Democratic
side. This hearing as it turns out is being held at the same time
as the floor action on the tax bill, and so some of us will be ducking
in and out, and I will be leaving after this to participate in the de-
bate and come back as soon as I can.
And, again, many of the Members will be in and out and we are
sorry that this hearing is being punctuated. There is also, for
Democrats, a third event going on at this very same time and as
I look around, it is only Xavier and I who are not there.
Mr. Chairman, thank you for calling today’s hearing, on the im-
portant subject of the upcoming WTO ministerial meeting to be
held in Seattle later this year. It promises to be a historic situation
marking the launch of the next round of world trade negotiations.
It will be the largest trade event ever held in and hosted by the
United States.
In any major undertaking, the first steps are often critical ones.
They define the shape of the endeavor. They give direction to the
task at hand. This will be especially so in Seattle as the 134 coun-
tries initiate a new effort to develop rules that will govern the
course of trade in the next millennium. As host of the ministerial,
the United States will have an opportunity, indeed a responsibility,
to place its mark on the new round of trade negotiations. It is of
the utmost importance, therefore, that the administration, in con-
sultation with Congress, clearly identify its goals for the new round
and state those goals definitively in Seattle.
I know our witnesses today will describe a range of issues that
they consider to be priorities for the ministerial meeting and I look
6
forward to hearing those views. In the interest of helping to get the
discussion going, let me suggest three areas that should be high on
our negotiators “to do” list at the ministerial and throughout the
next round.
First, the administration should use the ministerial and other
meetings to emphasize the importance of full compliance by Mem-
bers with their WTO obligations. The mechanism for pursuit of
that goal should continue to include the WTO’s trade policy review
mechanism, TPRM. It should be bolstered by requiring govern-
ments to set target dates for coming into compliance with par-
ticular commitments and make nonconfidential versions of informa-
tion collected during the TPRM process available to members in
dispute settlement proceedings.
Second, the United States should have as a principal goal in the
next round the development of rules concerning transparency in
policies and practices affecting foreign producers ability to get
goods and services to customers. This should include rules and the
publication of laws, regulations, rules and administrative and judi-
cial decisions. Further, the United States should seek rules requir-
ing defendant governments in dispute settlement proceedings to co-
operate in the disclosure of evidence of government actions except
where there is a clear threat to national security.
Third, the ministerial and the next round of negotiations should
be the occasion for recognizing — and many of you have heard me
say this before — that trade policy is more than just about lowering
tariffs and eliminating traditional nontariff barriers, as important
as that is. As the world economy has become more integrated, and
indeed it has, issues once considered to be beyond the scope of
trade policy are now very much a part of trade dynamics. Those
issues include the ways in which countries regulate or fail to regu-
late their labor markets.
Accordingly, the United States should, among other things, sup-
port negotiating objectives that include the development of rules
that ensure adherence to trade and labor standards.
Next, support the establishment of a working group in the WTO
on the impact of labor market standards on trade.
And fourth, support development of ongoing institutional link-
ages between the WTO and ILO on trade labor market issues.
I would welcome comment on these suggestions during today’s
hearings, and I look forward to hearing the proposals specifically
coming from our witnesses. Thank you.
Mr. Chairman, if you would excuse me for a few minutes. If they
will call me in turn on the floor, I will be right back.
[The opening statement of Mr. Ramstad follows:]
Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this important hearing today to discuss our
negotiating objectives at the upcoming Seattle Ministerial Meeting.
It is critical that we prepare an aggressive, strategic plan for achieving our objec-
tives at the upcoming Ministerial. Seattle will host the largest trade event ever held
in the U.S., and we must ensure that it is also the most successful for achieving
greater trade liberalization for American workers, consumers, manufacturers, farm-
ers and service providers.
I want to pay special attention to market access for U.S. agriculture commodities
and value-added foods. We all know the current problems that face farmers, but the
truth is that American farmers have been disproportionately hit by foreign trade
7
barriers for many years — despite being the largest single positive contributor to the
US trade balance!
Agriculture is a difficult sector to address, but it is part of the “build-in” agenda
and deserves significant attention. We must make sure not only that these discus-
sions begin. We must also ensure they are substantive, aggressive and fruitful.
American farmers deserve our best effort.
We will never accomplish our goals if nations are allowed to cling to old, market-
distorting, protection-driven programs and practices. Countries with the most bla-
tant and arduous trade barriers for U.S. agriculture exports, such as the European
Union, will fight any and all efforts to make real progress in knocking down these
unfair, anti-trade practices. They will try to protect them and keep them in the
“blue box.” This cannot be tolerated!
We must also structure our approach at these meetings to set ourselves up for
the greatest gains for agriculture as possible. I believe we should adhere to the Uru-
guay Round framework, which provides for a comprehensive, formula-based negotia-
tion without exceptions. We should pursue conclusion with a single undertaking en-
compassing all sectors.
Mr. Chairman, thanks again for calling this hearing. I look forward to hearing
from our witnesses today about the necessary elements for launching a comprehen-
sive, successful round of multilateral trade negotiations in Seattle.
Chairman Crane. All right. Thank you, we will proceed in the
order I presented you.
Mr. Weller.
STATEMENT OF HON. JERRY WELLER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Weller. Thank you, Mr. Chairman. Thank you for the op-
portunity to testify today. I would like to reintroduce to the Trade
Subcommittee an issue that I brought before the Full Committee
during the markup of the Financial Freedom Act of 1999. This
issue involves the loss of 20,000 American film industry jobs from
runaway film production. I want to raise this issue to urge that our
domestic film industry be given a seat at the table at the WTO
talks in Seattle to address the cultural content issue and its rela-
tionship to runaway film production.
The problem with runaway film production is a growing national
issue which directly impacts thousands of American workers from
New York to Florida, Washington to California, and Illinois to
Texas. During the Committee discussion on the Financial Freedom
Act, I offered an amendment which I later withdrew to introduce
a wage-based tax credit and creative financing tax incentives to
counter loss of film production jobs to Canada.
Remember the film “Coming to America”? Unfortunately, it
seems that filmmaking jobs are now running from America. In fact,
a one-time Presidential candidate once referred to that “giant suck-
ing sound” of jobs heading south. Well, that giant sucking sound
is really the sound of 20,000 film industry jobs heading north to
Canada.
A recent study commissioned by the Directors Guild of America
and the Screen Actors Guild shows that in 1993 over $10 billion
in economic activity was lost to runaway economic film and tele-
vision production. This is more than five-fold since the beginning
of this decade. In the last 4 years alone, Texas has shown a 31 per-
cent decrease in direct production revenues, while my State of Illi-
8
nois is down nearly 20 percent. Nationally, this has resulted in a
loss of 20,000 jobs.
In looking at the small businesses and jobs lost by this phe-
nomenon, we are not just talking about directors and actors; rath-
er, we are talking about the small businesses that support the film
industry and make America great. These include caterers, hotel
and motel operators, restaurants and bars, rental equipment busi-
nesses, electricians, set construction workers and many others in-
volved in this vitally important and culturally indigenous economic
activity. Over the years this industry has been a leading exporter
and driver of small business job creation.
Mr. Chairman, this is a constituent issue which we should take
seriously. This is also a constituent issue for you and other Mem-
bers of the Subcommittee. I come from a district which includes Jo-
liet, Elwood and Calumet City, the home of Joliet Jake and Elwood
Blues, which I often refer as the “Blues Brothers” district. Last
year, my constituents and I were stunned when they decided to
make the film “Blues Brothers 2000,” they chose to film it in To-
ronto rather than Chicago. Even more embarrassing was the fact
that the Canadian filmmakers were calling the Chicago Film Com-
mission to ask them how to best portray Chicago.
With my statement I have included the Directors Guild and
Screen Actors Guild study explaining the reasons why the film in-
dustry is moving out of the country, and they have concluded that
one of the many reasons is the tax incentives offered in other coun-
tries like Canada, Australia and the United Kingdom, which we do
not have here in the United States. Canada alone offers Federal
and provincial tax credits between 22 and 46 percent of labor costs.
These incentives are enough to make any business consider relo-
cating, particularly when savings from filming in Canada can mean
a dollar savings overall.
The United States shouldn’t be put in a competitive disadvantage
by tax incentives offered abroad. Rather we need to level the
playingfield for the small businesses impacted by the runaway pro-
duction and create jobs in America, for Americans.
Related to this is an issue of Canadian cultural content policy.
The Canadian government has given certain “cultural industries”
special treatment. This policy has been implemented in large part
by Canadian legislation as well as some foreign trade issues such
as tariffs, taxes, foreign investment restrictions and content re-
quirements that discriminate against U.S. cultural industries. Can-
ada has consistently protected its cultural industries.
This has been discussed and negotiated in the past. I believe that
it must be addressed in Seattle with the backdrop of the issue of
runaway film production. We have a situation in which thousands
of U.S. jobs are being lured to Canada and other countries through
favorable tax treatment, while at the same time cultural policies
established by the Canadians and others discriminate against U.S.
interests thereby creating a double hit to industries like our domes-
tic film production.
Mr. Chairman, even if the problem of runaway production had
not become so great, the Canadian insistence on maintaining cul-
tural content rules and regulations ought to be put on the table at
the Seattle WTO talks. However, simple fairness requires response
9
by the United States to the increasing efforts by Canada to attract
production away from the United States. So long as these efforts
continue, the U.S. must address the Canadian cultural content
rules. Canada cannot unilaterally decide to invite in our produc-
tions jobs, but close the door on American domestic productions.
Mr. Chairman, with the problem of runaway film production in
mind, I ask that the issue of cultural content be placed on the table
and addressed at the WTO talks in Seattle. Let’s be honest about
this issue of runaway production. It is all about jobs. The average
film industry worker earns $26,000 a year. This Congress has
given great attention, and the right kind of attention, to the loss
of 10,000 steel industry jobs over the past year. The film industry
has lost over 20,000 jobs in the past year, and most of those jobs
have emigrated north. It is time to address this problem and save
U.S. jobs.
Mr. Chairman, thank you for the opportunity to testify. I look
forward to addressing any questions you may have.
[The prepared statement follows:]
Statement of the Hon. Jerry Weller, a Representative in Congress from the
State of Illinois
Mr. Chairman,
Thank you for this opportunity to testify here today. I want to reintroduce to the
Subcommittee an issue that I brought before the full Committee during the markup
of the Financial Freedom Act of 1999. The issue is the loss of 20,000 American film
industry jobs from runaway film production. I want to raise this issue to urge that
our domestic film industry be given a seat at the table at the WTO talks in Seattle
to address the cultural content issue and its relationship to runaway film produc-
tion.
The problem with runaway film production is a growing National issue which di-
rectly impacts thousands of working Americans from New York to Florida; Wash-
ington to California, Illinois to Texas. During the committee discussion on the Fi-
nancial Freedom Act, I offered an amendment to introduce a wage based teix credit
and creative financing tax incentives to counter the loss of film production jobs to
Canada.
Remember the film “Coming to America?” Unfortunately, its seems that film mak-
ing jobs are now running from America. In fact, a one time Presidential candidate
once referred to that giant sucking sound of jobs heading south — well that giant
sucking sound is really the sound of 20,000 film jobs heading north to Canada.
A recent study commissioned by the Director’s Guild of America and the Screen
Actors Guild shows that in 1998 over $10 billion was lost to runaway economic film
and television production. This is more than fivefold since the beginning of the dec-
ade. In the last four years, Texas has shown a 31% decrease in direct production
revenues, while my state Illinois is down nearly 20%. This has resulted in a loss
of 20,000 jobs nationally.
In looking at the small businesses and jobs lost by this phenomena, we are not
just talking about directors and actors, rather we are talking about the small busi-
nesses that support the film industry and make America great. This includes: cater-
ers, hotel and motel operators, restaurants and bars, rental equipment businesses,
electricians, set construction workers and many others involved in this vitally im-
portant and culturally indigenous economic activity. Over the years, this industry
has been a leading exporter and driver of small business job creation.
Mr. Chairman this is a constituent issue which we should take seriously. This is
a constituent issue for you too. I come from a district which includes Joliet, Elwood
and Calumet City, the home of Joliet Jake and Elwood Blues, which I often refer
to as the “Blues Brothers” district. Last year, my constituents and I were stunned
when they decided to make the film “Blues Brothers 2000,” they choose to film it
in Toronto rather than Chicago. Embarrassing was the fact that the Canadian
filmmakers were calling the Chicago film commission to ask them how to best por-
tray Chicago.
With my statement, I have included the Directors Guild and Screen Actors Guild
study explaining the reasons why the film industry is moving out of the country,
and they have concluded that one of the main reasons is the teix incentives offered
10
in other countries like Canada, Australia and the U.K. which we do not have in the
United States. Canada alone offers federal and provincial tax credits of between
22% and 46% of labor costs. Those incentives are enough to make any business relo-
cate. Particularly when savings from filming in Canada can mean a dollar savings
overall.
The United States should not be put at a competitive disadvantage by tax incen-
tives offered abroad. Rather we need to level the playing field for the small busi-
nesses impacted by runaway production and create jobs in America, for Americans.
Related to this there is an issue of Canadian cultural content policy. The Cana-
dian Government has given certain “cultural industries” special treatment. This pol-
icy has been implemented in large part through Canadian legislation, as well as
some foreign trade through tarifft, taxes, foreign investment restrictions and con-
tent requirements that discriminate against U.S. cultural industries. Canada has
consistently protected its cultural industries.
This has been discussed and negotiated in the past. I believe that it must be ad-
dressed in Seattle with the backdrop of the issue of runaway film production. We
have a situation in which thousands of U.S. jobs are being lured to Canada and
other countries through favorable teix treatment. While at the same time, cultural
policies established by the Canadians and others discriminate against U.S. interests
thereby creating a double hit to industries like domestic film production.
Mr. Chairman, with the problem of runaway film production in mind, I ask that
the issue of cultural content be placed on the table and addressed at the WTO talks
in Seattle. Lets be honest about this issue of runaway production — its all about jobs.
The average film industry worker earns $26,000 a year. This Congress has given
great attention to the loss of 10,000 steel industry jobs over the past year. The film
industry has lost 20,000 jobs and most of those jobs have emigrated north. It is time
to address the problem and save U.S. jobs.
Thank you Mr. Chairman.
Chairman Crane. Thank you.
Mr. Becerra. Wait. One thing before you start, Xavier. Try and
keep your oral testimony to 5 minutes or less and all written state-
ments will be made a part of the permanent record.
STATEMENT OF HON. XAVIER BECERRA, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Becerra. Thank you, Mr. Chairman, and thank you to the
Members of the Subcommittee, my fellow Subcommittee Members.
Let me also begin by thanking my colleague, Mr. Weller, for having
raised this issue of runaway productions as we start to develop and
negotiate objectives for the upcoming World Trade Organization
ministerial in Seattle.
This issue may not have quite the direct connection that you
might think in terms of the ministerial that we are about to em-
bark upon in Seattle, but it certainly does relate to trade. Jobs are
leaving communities across the Nation and production companies
are choosing more and more to film outside not just of California,
but outside of this country. Whether it is New York, North Caro-
lina, Illinois, Washington State, Texas, Oregon, Maryland, Michi-
gan, Wisconsin, all of these States along with California and others
have been able to attract substantial production in the past. But
unfortunately we are seeing more and more that these sites are
being abandoned for places abroad.
Mr. Weller mentioned that already we can talk about the 20,000
jobs that have been lost, some $10.3 billion in economic loss to the
United States in 1998 alone as a result of these fleeing productions.
Now, we are not talking about the movie stars who make the
million dollar salaries. We are talking about the ordinary working
11
people who build sets, provide lighting, cater food, operate hotels,
and work in other capacities directly or indirectly in support of pro-
duction of movies and television programs. The average film indus-
try worker makes about $26,000 a year.
Although a number of factors have caused productions to leave
the United States, it is clear that government tax credits by other
countries do have an impact. In Canada, since 1996, we have seen
that nation offer to those production companies that come into
their country 11 percent tax credits for labor costs and production
costs. When you add up what the provincial governments also pro-
vide you have somewhere between 22 percent to 46 percent savings
of their labor expenditures for production companies going into
Canada. There are other things they do as well. They provide duty
free import of stage props, special effects equipment, other things
that give these production companies a rather large break.
Now, I raise this issue today because, as Mr. Weller has said,
there is a disconnect, perhaps a little, between what the U.S. is ac-
cepting in terms of Canadian insistence upon its cultural content
laws while at the same time it is aggressively targeting U.S. jobs.
For instance, only 40 percent of films aired on Canadian television
can be produced in other countries. The Disney Channel and HBO
are not allowed to have their own channels in Canada due to laws
designed to protect Canadian competitors.
At the same time, it is not uncommon for Canadian government
officials to fly to Los Angeles, New York, and other U.S. production
centers to attend events and to meet directly with film and tele-
vision producers to advertise their incentive structure. For exam-
ple, representatives of Revenue Canada — that is the Canadian
IRS — attended a recent “Location 99” show in Los Angeles in order
to promote Canadian incentives.
I know the Office of U.S. Trade Representative will be testifying
today and we are looking forward to addressing this issue with her
a little further and we encourage Ambassador Barshefsky to try to
limit this content exception. We know that she has tried in the past
to try to eliminate it and we appreciate that.
In 1996, the motion picture and television industry made $27.5
billion in contributions simply to the State of California’s economy.
If you add up the rest of the other 49 States you will find that the
impact of this industry is tremendous. Canada is now the second
largest exporter of television programming, following the United
States. In 1998, Toronto became the third busiest production center
in the world after Los Angeles and New York. And Vancouver now
ranks fourth.
If we do not engage on this issue, we will find that we have irre-
versibly and irretrievably lost jobs in this country because we have
failed to act in a timely manner. We certainly don’t want to have
to constantly go to the floor of the House to do what we did yester-
day to try to support the steel industry.
I would hope that we would move quickly. While we may not be
dealing directly with this issue through the ministerial in Seattle,
it is a good time to talk about cultural content and other factors
that do in the end cost U.S. jobs.
Mr. Chairman, I thank you and the Members of this Sub-
committee for the attention.
12
[The prepared statement follows:]
Statement of the Hon. Xavier Beeerra, a Representative in Congress from
the State of California
Let me begin by thanking Chairman Crane, Ranking Democrat Levin, and my fel-
low Subcommittee Members for affording me the opportunity to testify here this
morning. I want to also commend my colleague Mr. Weller, for raising the issue of
runaway productions as we start to develop our negotiating objectives for the up-
coming World Trade Organization Ministerial in Seattle.
Jobs are leaving communities across the nation as production companies choose
to film abroad rather than filming in California, New York, North Carolina, Illinois,
Washington state, Texas, Oregon, Maryland, Michigan, or Wisconsin, as they had
in the past. In 1998, the U.S. suffered a $10.3 billion economic loss because of pro-
ductions moving to other countries. Last year runaway productions accounted for
the loss of 20,000 U.S. jobs.
It is important to note that job loss resulting from runaway productions affects
ordinary working people who build sets, provide lighting, cater food, operate hotels,
wait tables in restaurants and bars, and work in other capacities that directly and
indirectly support the production of movies and television programs. The average
film industry worker makes about $26,000 a year.
Although a number of factors have caused productions to leave, it is clear that
government tax credits in other countries have played an integral role in the exodus
of U.S. production companies. Countries like Canada recognize the benefits that
U.S. movie and television production companies can bring to local economies. Since
1996 Canada has offered federal rebates that equal 11% of spending for all Cana-
dian labor involved in a production. Many provincial governments supplement these
incentives, creating a total savings of 22% to 46% on Canadian labor expenditures.
Moreover, as of January 1998, wardrobe, stage props, special effects equipment, and
photographic equipment, of U.S. origin, used in the production of feature films, t.v.
movies, or t.v. series are imported duty-free.
I raise this issue today because there is a disconnect between the U.S. accepting
Canada’s insistence upon its cultural content laws while at the same time it aggres-
sively targets U.S. jobs. For instance, only 40% of films aired on Canadian television
can be produced in other countries. The Disney Channel and HBO are not allowed
to have their own channels in Canada due to laws designed to protect Canadian
competitors. At the same time, it is not uncommon for Canadian government offi-
cials and film commission representatives to fly to Los Angeles, New York City, or
other U.S. production centers to attend events or meet directly with film and tele-
vision producers to advertise their incentive structure. For example, representatives
of Revenue Canada (the Canadian IRS) attended a recent “Location 99” show in Los
Angeles in order to promote Canadian incentives.
The Office of the U.S. Trade Representative will be testifying in the next panel
and I look forward to further developing the discussion on cultural content laws at
that time. Three years ago the Trade Representative attempted to persuade Canada
to drop cultural content restrictions, but unfortunately did not succeed. I encourage
Ms. Barshefsky to redouble her efforts in this endeavor. In the past, the issue of
cultural exemptions was more narrowly focused on whether a clear violation of free
trade should be granted an exception. I think that the answer was “NO” then, and
I think it is “NO” today.
However, the unfairness of the exception is even more dramatic today. The recent
study commissioned by the Directors Guild of America and Screen Actors Guild
demonstrates how the runaway productions problem has escalated since the last
round of trade talks. Consequently, the U.S. must fight harder than ever to elimi-
nate the cultural content restriction and open up the Canadian markets to all pro-
ductions.
In 1996, the motion picture and television industry made a $27.5 billion contribu-
tion to California’s economy — $14.2 billion in economic activity was generated in Los
Angeles alone. The industry is integral to sustaining our economic prosperity not
only due to jobs created by the entertainment industry but also because it spurs
growth in related sectors such as the fashion and apparel industry, furniture manu-
facturing, multi-media industry, and tourism.
Canada is now the second-largest exporter of television programming, following
the U.S. In 1998, Toronto became the third busiest production center in the world,
after Los Angeles and New York, with Vancouver ranking fourth. If we do not en-
gage on this issue, we will find that we have irretrievably lost U.S. jobs because
we failed to act in a timely manner.
13
Chairman Crane. Thank you. Mr. Regula.
STATEMENT OF HON. RALPH REGULA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. Regula. Thank you, Mr. Chairman. And I will summarize
my remarks. I think there is a lot of synergy between what is hap-
pening on the floor today and this hearing, because we will hear
a lot of speeches during the debate that we have a surplus, the
economy is strong, and therefore we should give some of the money
back to the taxpayers. That strong economy is predicated on both
free and fair trade. And I think you might call this a quality of life
hearing as much as a trade hearing, because if we are to have a
strong economy prospectively and generate all of those surpluses
we are hearing about out in the future, it is going to have to de-
pend on a strong economy with jobs, with an opportunity to trade.
And obviously a free flow of trade internationally is a very strong
bulwark against the reduction in the economy.
I just noticed in the paper today that South America generally
has had some diminution in their economy overall, and that will
affect us, as we found out with Asia when the Asian economy got
sick and we got the flu in a backhanded way.
So I commend you for what you are doing. But let me say also
that we put a lot of effort into the Uruguay round. I was involved
as cochairman of the Steel Caucus in getting protection of our anti-
dumping laws, and the antidumping laws go to the question of fair-
ness as well as the freedom in our trade relationships.
I am concerned that there is a group in the WTO that wants to
reopen the question of antidumping rules and thereby weaken the
U.S. trade laws. I commend Ambassador Barshefsky for ensuring
that the WTO working group on the Interaction between Trade and
Competition Policy focuses its attention on significant, well-defined
international competition policy and not include trade remedy in-
struments.
I would just have one simple message as they look at the WTO
rules: leave the dumping rules alone. If anything, strengthen them,
but do not tamper with them and do not respond to some countries
that want greater access to our country. We had a debate last night
on the steel issue and obviously we heard that over and over again
that there have been predatory practices that tend to circumvent
our antidumping laws.
We do have an enormously open marketplace, and I think we are
a model for the rest of the world, but as part of this we need pro-
tection against unfair trade practices. I certainly advocate WTO
consistent reforms to the trade laws, including reforming the injury
standard for section 201 cases to the injury standard provided in
WTO’s safeguards agreement. The U.S. currently has a higher in-
jury standard than is required by WTO rules. This change would
allow industry and labor to use section 201 more effectively.
We constantly hear the statement that the industry and labor
should use the laws that we have rather than seek additional pro-
tection that perhaps goes in excess of our current law. I have to
smile, I see President William McKinley’s picture up here, who was
14
a former Chairman of Ways and Means, and he built his first run
as a Member of this body on the protective tariff and that was the
keystone of his first campaign. And yet if you read the speech in
Buffalo after he had been inaugurated for a second term and he
said we are in a world trade situation and we have to open mar-
kets and we have to trade with the world. So he really did a sub-
stantial reversal on the issue of trade.
Those statements he made in Buffalo are certainly very relevant
today and I think you have an enormous challenge as a Sub-
committee to give recommendations to our negotiators in Seattle to
ensure that our industry and our Nation is in a free trade environ-
ment, but also a fair trade environment. And I thank you for the
opportunity to be here.
[The prepared statement of Mr. Regula follows:]
Statement of the Hon. Ralph Regula, a Representative in Congress from the
State of Ohio
Mr. Chairman and Members of the Trade Subcommittee, thank you for the oppor-
tunity to present testimony regarding the U.S. negotiating objectives for the WTO
Seattle Ministerial Meeting. As you are well aware, the Seattle Ministerial will con-
vene this November in order to launch and set the negotiating parameters for a new
“round” of multilateral trade negotiations.
U.S. Trade Representative Charlene Barshefsky testified earlier this year before
the Commerce, Justice, State Appropriations Subcommittee that the agenda for
these meetings should include such issues as broad reductions in tariffs, the elimi-
nation of export subsidies and further reductions in trade-distorting domestic sup-
ports linked to production. 1 further understand that these trade talks will focus
more directly on reshaping WTO rules on agriculture, services and intellectual prop-
erty. The question remains, what other issues will be added to the list of items sub-
ject to negotiation.
While I support market opening efforts, I would like to stress that maintaining
free trade depends on maintaining fair trade. In this regard, I believe that it is im-
perative that the United States hold firm against reopening the WTO’s antidumping
rules.
As a veteran of the Uruguay Round negotiations, I remind everyone that the cur-
rent WTO antidumping rules were agreed to only with great difficulty. I personally
participated in many meetings and worked closely with industry, labor and adminis-
tration officials to ensure that U.S. trade laws were not adversely impacted or sig-
nificantly weakened during the Uruguay Round.
I am concerned that there continues to be a group of countries that seek to reopen
the WTO antidumping rules and call for a weakening of the U.S. trade laws. Most
recently, there were efforts in the WTO Working Group on the Interaction between
Trade and Competition Policy to weaken our trade laws. I commend the U.S. Trade
Representative for ensuring that this working group focuses its attention on signifi-
cant, well-define international competition policy issues that do not include trade
remedy instruments.
Effective antidumping rules are a cornerstone of an open market policy. The
United States now has one of the most open markets in the global marketplace. But,
there must be some protection against unfair trading practices if we are going to
make our markets available to all our trading partners. We still face many trading
partners that have not reciprocated by fully opening their markets. So it is only fair
that our domestic industries have some protection against dumped and subsidized
imports.
A case in point is the recent steel import surge that occurred in 1998, with im-
ports still continuing at higher than average rates in 1999. The U.S. industry and
labor have sought redress through our unfair trade laws and as these cases move
through the process, we are now seeing some relief provided to slow the rate of
dumped and subsidized steel imports. But, even under expedited procedures, the
process has been long and costly for domestic steel manufacturers and American
steel workers. For this reason alone, it is imperative that our U.S. trade laws are
not weakened.
I would further advocate several WTO-consistent reforms to the U.S. trade laws,
including conforming the injury standard for Section 201 cases to the injury stand-
ard provided in the WTO Safeguards Agreement. The U.S. currently has a higher
15
injury standard. This would allow industry and labor to use Section 201 more effec-
tively to counter import surges. I also support the provisions of H.R. 1505 intro-
duced by Rep. Phil English which would strengthen our trade laws in a manner con-
sistent with our international obligations.
I would like to close by saying that there have been no major problems with WTO
Members’ implementation of the antidumping agreement, and certainly non that
justify reopening the agreement itself. While continued monitoring of how the Uru-
guay Round rules are being implemented makes sense, that is very different from
re-negotiating those rules. The United States should be very clear about this distinc-
tion, and should be careful not to agree to anything under the “implementation” ru-
bric that will in practice lead to reopening the antidumping agreements.
Thank you again for the opportunity to testify before the Subcommittee regarding
the importance of maintaining strong and effective U.S. trade laws as a way to en-
sure that there is truly a “level pla3dng field” as we work to open more markets
throughout the world.
Chairman Crane. We thank you, and harking back to the
McKinley example, McKinley pushed through the most protec-
tionist tariff measure in the history of this country in 1890 and
that brought on what was called the “Panic of ’93,” Grover Cleve-
land took the blame for that and he was not responsible for that
stupid piece of legislation and he began immediately dismantling
it and made the observation at the time that when you put those
walls around the country, you are inflicting the greatest injury on
that man who earns his daily bread with the sweat of his brow.
Now, our good friends on the other side of the aisle are ones who
have that great free-trade tradition throughout their history until
post World War II. We hope they will start coming back to the fold.
And Republicans learned the hard way as McKinley did. But we
are lifting the blinders too.
Mr. Neal. Mr. Chairman, I would hope that you would point out
what party Mr. McKinley belonged to.
Chairman Crane. Republican. And Cleveland was a good free-
trade Democrat.
My colleague Dan Miller is our next witness.
STATEMENT OF HON. DAN MILLER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Miller. Thank you, Mr. Chairman. One of our major goals
as we approach the negotiations in Seattle is to open up markets
and bring down barriers to our products, especially for our farmers
around the world. But when we approach this, we need to have
clean hands. If we are asking other countries to open their prod-
ucts, we cannot be protective of our products and we have one that
stands out like a sore thumb and that is the sugar program, be-
cause that is a very heavily protected program in this country.
It is designed where the Federal Government forces the price of
sugar to be about four times the world price. The price of sugar in
the United States is about 23 cents a pound. The world price ac-
cording to the paper this morning is about 6 cents a pound. This
is very much an anti-free-market program that is due to expire in
2002, so we need to make sure that it is not allowed to continue
certainly past that date.
Let me briefly describe the program. The program is designed,
since we cannot grow enough sugar in the United States we must
16
import some sugar, that we control the total supply and force the
price up. And what the Federal Government does is through a non-
recourse loan program, and the loan program is in the 18- to 22-
cent range, depending on the type of sugar, and we cannot lose any
money on this nonrecourse loan, they have to maintain a price
above 22 cents. That is the reason the price stays at 23 cents a
pound approximately. And we have a quota system with coun-
tries — this is a very strange program — so we have 40 countries in
the world that are allowed to sell sugar to the United States. Now,
10 of these countries cannot each grow enough sugar for their own
consumption. And it is amazing, big countries that grow a large
amount of sugar such as Australia, they sell it to everybody in the
world for 6 cents a pound but not to the United States. They sell
it to us for 23 cents a pound. It makes no economic sense.
And then we have 10 countries that cannot even grow enough for
their own consumption and they are buying it from countries like
Australia and then selling it to us and making this profit. It is a
strange program and does not belong in our free enterprise system
in this country. It is very much anticonsumer. The GAO study
shows the cost of this program as at least $1 billion a year. It kills
jobs in this country. Let me describe some of the jobs that are hurt.
First of all, refineries. Sugar refineries cannot get enough sugar
and they have been closing for the past decade because of this pro-
gram. We have lost over 10 sugar refineries. These are good high
paying union jobs, by the way. But we have the users of sugar. One
is Bob’s Candies down in Georgia. It is a candy cane company
where sugar is a major cost of its production. It has to pay the 23
cents for its sugar, but its competitors in Canada only pay 6 cents
for sugar. It cannot compete. It is having to shift its jobs overseas
to be able to be competitive in the sugar cane business. This is a
company that has been around for three generations.
In yesterday’s Hill Magazine, there was a case in Michigan, Con-
gressman Dingell’s district, of a company that is a $35 million a
year company with 60 employees and it was importing some type
of sugar syrup from Canada and the trade people say you are im-
porting that because all you want is the sugar out of it. Well, all
they are going to do is shut down that company and move those
jobs from Detroit.
This is very much an antijob program and anti-free-market pro-
gram. It is an embarrassment really to us I think because we have
had articles in Time Magazine and Reader’s Digest and the “Fleec-
ing of America” on television explaining how we allow this to con-
tinue. And if we are going to be people that believe in the free mar-
ket system, we need to make sure that we say, hey, we are willing
to allow all of our products to compete in the world market, and
if we are going to expect Canada and Japan and China and other
ones to come to the table and to negotiate in the same way with
clean hands.
So I say we need to have clean hands when we negotiate and we
need to make sure that as this program expires in 2002 we don’t
allow it to be reauthorized, because it is going to be difficult for our
negotiators to be in there seeking a fair deal. And I would like to
submit my official statement for the record and also a recent GAO
17
report that was just released this week analyzing the entire sugar
program, and I thank you, Mr. Chairman.
[The prepared statement of Mr. Miller follows:]
Statement of the Hon. Dan Miller, a Representative in Congress from the
State of Florida
Chairman Crane, Ranking Member Levin, Distinguished Colleagues:
Thank you for allowing me to testify about the important WTO ministerial meet-
ing that will take place in Seattle later this year. 1 feel this is “fish or cut bait”
time for the United States in seeking free and fair trade and to truly help our farm-
ers and industry. 1 applaud this committee for holding this important hearing.
Much of the financial hardship being experienced by our nation’s farmers is due
to contraction of overseas markets for U.S. agricultural exports. What 1 want to
stress to you today is the importance of having the United States Trade Representa-
tive enter into the Seattle Round with “clean hands” in order to change that trouble-
some trend. Ostensibly, Seattle is an opportunity to knock down barriers to trades
and allow American industry a greater opportunity to export into other countries.
This would result in greater incomes for U.S. farmers and businesses. The sugar
program undermines our trade objectives and is colliding with efforts to help small
farmers.
The Seattle meeting is the best opportunity to be pro-U.S. farmer if we have the
courage to knock down barriers. If every country is allowed to exempt politically
well connected commodities from trade negotiations by taking them off the table be-
fore they enter the room, then there can be no progress on free trade. For example,
if the United States continues to knock out foreign sugar, then Canada can justify
kicking out United States dairy and Europe can knock out US oilseed crops, and
so on. Seattle must not allow this protectionist and wasteful cycle to continue. Quite
simply, our negotiators must decide whether it is more important to preserve an
outdated sugar program than to open markets for competitive American farm prod-
ucts. Remember the US sugar program hurts more people than it helps.
I would like to concentrate my remarks on how the domestic sugar program hurts
our economy and hampers the competitiveness of many important American indus-
tries. As you know, I have been very active in reforming the sugar program and I
have introduced H.R. 1850 to phase out this program.
Through price supports, the sugar program keeps the price of sugar in the United
States artificially high. By tightly limiting the amount of sugar that may be im-
ported into the United States, and subsidizing the operations of sugar producers
through federal loans, the sugar program forces the price of domestic sugar to be
at least twice as high as the price of sugar on the world market.
While this is a sweet deal for sugar producers, it leaves a sour taste in the mouths
of tcixpayers, consumers, American workers, and the environment. The GAO esti-
mates that the sugar program costs consumers more than $1 billion every year in
higher prices for food and table sugar. Jobs for American workers have been elimi-
nated because of sugar refineries that have been forced to shut down and because
of companies relocating overseas where sugar is cheaper. A more recent GAO study
shows that domestic users incur a cost of $200 million annually for each penny in
excess of the estimated price needed to avoid forfeitures. This does not even address
the higher costs forced on users by the inflated prices of the program.
The environment is damaged by sugar production in Florida. The subsidized pro-
duction of sugar in Florida results in phosphorous-laden run-off flowing into the Ev-
erglades, which contributes to the destruction of this fragile ecosystem. Amazingly,
the federal government continues to subsidize sugar producers, even as Congress
participates in a multi-billion dollar project to repair the damage done to the Ever-
glades. Recently, the Army Corps of Engineers announced a long-awaited and ambi-
tious plan to save the Everglades.
For the past several Congresses I have introduced amendments to the Agriculture
Appropriations Bill as well as stand alone legislation to reform the federal sugar
program. This year I introduced H.R. 1850 with Congressman George Miller (D-
CA). H.R. 1850 has the support of national taxpayer, consumer, and environmental
advocacy groups. It has also been co-sponsored by Trade subcommittee Chairman
Crane and subcommittee members Clay Shaw and Jim Ramstad.
As my time is limited let me concentrate on several troublesome aspects of this
program. Specifically, how the sugar program costs consumers over $1 billion dollars
a year and benefits a select few sugar producers. Moreover, I will discuss how the
sugar program kills U.S. sugar refinery and manufacturing jobs.
18
Costs to Taxpayers
In 1993, the GAO has estimated that the present sugar program costs over $1
billion per year in higher prices for table sugar and food. This cost has been con-
firmed by Public Voice for Food and Health Policy. I believe this cost is probably
higher today due to the disparity of world sugar prices and the US sugar program
price. Not only do higher costs affect the prices paid at the cash register, they affect
the taxpayer in the costs of government. Higher food costs mean higher entitlement
spending under Food Stamps or other government programs such as school lunches
and Meals on Wheels. It is a regressive form of corporate welfare benefitting a select
few producers while making every consumer pay more at the cash register to justify
this program.
The U.S. Department of Commerce has noted that the “effect of the sugar pro-
gram is similar to a regressive sales teix, which hits lower-income families harder
than upper income families.” If you support regressive teixation, then I guess you
have no problem with the U.S. sugar program. If you do not favor taxing the poor
more heavily, however, you should favor changes in our sugar policies.
Finally, the flight of businesses out of the country due to the high domestic cost
of sugar results in lost revenue at the local, state and federal levels. Although no
calculation of this lost revenue is currently available, it is significant in light of the
many thousands of displaced workers.
Benefit to a Select Few
The GAO reported that 42% of the sugar programs benefits went to just 1 % of
the sugar producers in 1991 and 33 big sugar barons each received more than $1
million in extra revenues under the program. One producer even received $65 mil-
lion in one year.
Time Magazine did a story last November on the Fanjul family that outlined how
the U.S. sugar subsidy has helped propel this family into the ranks of the multi-
millionaires. I commend it to your reading as it fairly captures how the sugar pro-
gram helps a few well connected folks while sacrificing the good of the rest of the
country.
I must emphasize this because you will hear; “Don’t kick farmers when they are
down” or “the family farm needs support, not a kick in the teeth.” Great sound bites,
but totally inappropriate with the sugar program. Sugar plantations are not family
farms in the normal sense of that phrase. In 1995, the USDA compared the non-
cash economic benefits that accrue to farmers of various commodities thanks to gov-
ernment action. Wheat gets $23 per acre in government benefits, cotton farmers $87
per acre. Sugar gets $472 per acre. Moreover this artificially high price per acre of
sugar acreage complicates efforts to restore the Everglades by creating an economic
incentive to utilize more Everglades for sugar farming. And all this benefit goes to
a select few sugar barons.
So when our trade representatives defend the US sugar program in global trade
talks, they are defending the Fanjuls, the politically well connected, the select few,
but definitely not the average family farmer hurt by the contraction of overseas
markets. The USTR must not protect a few folks who are profiting from an over-
priced subsidy program at the expense of cattlemen, corn growers and other impor-
tant American commodities. Nor must the USTR protect the select few sugar barons
at the expense of the many important domestic users of sugar such as candy makers
and refineries which are important US industries.
Jobs Lost
The two main American industries adversely affected by our sugar program are
sugar refineries and manufacturers of products that utilize sugar.
Often, sugar refineries are unable to find a consistent and adequate supply of
sugar to operate year round. The variations create economic inefficiencies and waste
which result in these facilities being unable to stay in business. Moreover, refineries
process sugar and require sugar cane and beet to operate. Needless to say, buying
this raw material in the United States is overly expensive when compared to the
world price. Why would a conmany buy large quantities of sugar cane at $ .22 per
pound when they can buy at $.045 per pound in a foreign nation and take advan-
tage of other favorable economic factors such as labor costs and government regula-
tion? Defending the status quo will only send more jobs overseas.
Accordingly, it is not hard to see why our sugar system is sending refinery jobs
overseas. As recently as 1981 there were 23 sugar refineries in the United States.
Today, there are only 11 refineries. Over 3,500 jobs have been lost by closures at
the refineries due to a sugar program that only benefits a select few.
19
Similarly, manufacturers of products that rely on sugar are greatly affected by the
present sugar subsidy. Ask any businessman would they rather buy sugar at 22
cents per pound or at 4.5 cents per pound and they would all agree they would like
the cheaper sugar. Even with a duty that raises the cost to over 19 cents per pound
when sugar is brought into America, businessmen know that 19 cents is cheaper
than 22 cents. And businessmen know that they need to pack up and leave the
United States if they want to get that cheaper sugar. Also, the incentive remains
to move operations overseas if the company is pursuing an aggressive export strat-
egy.
I think the best example of the present sugar program driving jobs out of America
is the story of Bob’s Candies. Bob’s Candies was the largest producer of candy canes
in America. Candy canes are a very cyclical industry and are made to be a low cost
candy. However, the U.S. sugar program throws large roadblocks in the way of do-
mestic candy makers. Accordingly, Bob’s Candies moved to Jamaica where sugar is
much cheaper. The president of Bob’s Candies recently told Reader’s Digest that the
company would save more than $2 million a year in raw materials if the sugar pro-
gram was scrapped. This savings would enable the company to keep jobs in America
and lower retail prices. Unfortunately, it just makes good business sense to go over-
seas to get cheaper sugar to make candy. How many Bob’s Candy Canes will this
Committee tolerate?
Also, the Committee should note that the cost of our sugar program was a main
reason why Coke and other soda companies do not use sugar in soft drinks. Sugar
got too expensive. The program priced sugar out of the lucrative soft drink industry.
Instead, soft drinks now use high fructose corn syrup (HFCS) which does not have
the high costs and economic inefficiencies of the sugar program.
Finally, I ask this committee to keep in mind the fact the sugar industry is not
large in comparison to other aspects of the economy. According to USDA data there
are between 40,000 and 70,000 jobs directly related to the sugar program. This is
a small number compared to the 520,000 jobs in the food processing industry or the
thousands of lost Everglades related tourist jobs. Congress and our trade represent-
atives must not blindly protect a small special interest sugar program at the ex-
pense of the greater good.
The U.S. sugar protection program and its implementation causes odd distortions
in the world wide import and export of sugar that are utterly inconsistent with free
trade and free markets. According to the GAO study on the sugar program released
just this week, the United States allocates import levels to some 40 trading partner
countries in a manner that bears little relationship to the realities of supply and
demand.
For example, Brazil and the Philippines are both “allowed” by the USTR to import
approximately the same tonnage of sugar under this bizarre quota system despite
the fact that Brazil produces 21 times more sugar (5,215,000 tons) than the Phil-
ippines (249,000 tons). Furthermore, 10 of the 40 countries who are given sugar
quota allocations by the United States to import sugar here are actually net import-
ers of sugar themselves. 11 of the 40 countries who receive an allocation have aver-
age worldwide export levels that are less than their U.S. allocation level.
Can such a system really be consistent with our free trade message? How would
the United States react if one of our trading partners gave American corn farmers
a quota level that was the same as that of Honduras? Would we take seriously an-
other country’s admonitions about free trade if that country allocated imports of
American beef at the same low level as those of Liberia? These are the questions
that naturally flow from examination of our sugar program and I hope that our
trade representatives at Seattle do not feel compelled to expend valuable credibility
defending such an archaic and economically inefficient system that does not advance
the overall interests of the United States.
Put another way, the Seattle meeting must be the forum for the United States
to effectuate the greater good. Many more American jobs and consumers need
cheaper sugar and many more non-sugar farmers need our trade policy to be freed
from the millstone of our domestic sugar subsidy. If the Seattle Ministerial is suc-
cessful, the USTR can save American jobs in refining and manufacturing of any-
thing that uses sugar. Also, the USTR will save the teixpayers billions of dollars.
Again, I thank you Mr. Chairman for not only allowing me to testify but for your
continued leadership on the efforts to end the sugar subsidy. It is in America’s best
interests to get rid of foreign and domestic subsidies like our sugar program and
I am appreciate all the efforts this subcommittee will undertake to accomplish this
goal.
20
Chairman Crane. And without objection, so ordered with regard
to your request.
Mr. Houghton.
Mr. Houghton. Thank you, Mr. Chairman. I appreciate the tes-
timony. It is enlightening. I just have two or three questions I
would like to ask Mr. Weller. The Canadians are obviously con-
cerned about their cultural heritage and feel sometimes over-
whelmed about their proximity to the United States, so just to try
to sort of depersonalize this thing and get into the guts I would like
to ask you two or three questions.
First of all, what is really the practical impact here of the Cana-
dian cultural content rules? And second, does the United States
prohibit broadcast distribution or sale of Canadian-produced pro-
gramming? And third, really do the Canadian cultural context
rules have a real impact on employment of actors and directors and
things like that? You might want to turn to those questions.
Mr. Weller. Sure, Mr. Houghton, and thank you for your ques-
tions and I also want to thank you on behalf of all of us interested
in the question of runaway production for your commitment to
work with us and later this year conduct a hearing on the issue
of runaway production with the Oversight Subcommittee. I thank
you for your commitment to do that.
When it comes to the impact of the Canadian cultural content
rules, it could have a profound impact on U.S. producers of tele-
vision and motion pictures. There is a recent Law Review article
by publishers of Syracuse University Law Review. They noted that
certain cable channels like the Disney Channel are prohibited as
a result of cultural content rules enforced by the Canadian govern-
ment. And the irony of this is that similar prohibitions have caused
and forced many Canadian citizens who are interested in obtaining
these channels to buy U.S. satellite dishes on the black market.
And, moreover, Canada mandates that private stations must
have a 60-percent Canadian content measured over the broadcast
day and 50 percent over the evening hours, while the Canadian
government-owned CBC must have 60-percent Canadian content at
all times. It does have a very big impact on American film produc-
tion as well as American television production.
You had also asked whether or not the United States prohibits
broadcast distribution or sale of Canadian-produced programs. Not
at all. The United States of course has a free market for Canadian
products. And not only do we permit their programming, but many
Canadian television shows and television stars have been very suc-
cessful. Let me list some of those. SCTV, Due South, and Road to
Avalon, and performers like Rick Moranis, Dan Ackroyd, Jim
Carrey, and Michael J. Fox have all been very successful in the
United States precisely because we give our consumers the freedom
and the right to choose the type of program that they want to
watch and not have that enforced by the government.
You had also asked if the Canadian cultural content rules have
an impact on the employment of U.S. actors, directors and tech-
nical crews and others, and they do have an impact. Canada has
adopted a point system that must be satisfied if a production is to
21
achieve the cultural content designation. Under the point system
six of 10 creative production positions must he performed by Cana-
dians. In addition 75 percent of all expenditures have to be made
to Canadians. Thus U.S. citizens are cut out of the action. They are
cut out of the broad number of jobs in Canadian cultural content
production. And of course Canada has those opportunities for the
promises of wage rebates and tax incentives as well.
That is really one of the key reasons why it is so important that
the issue of runaway production as well as cultural content be ad-
dressed at the Seattle talks because it is having a real impact on
an industry which is so important to the United States. Domestic
film production is indigenous to our Nation. We have lost 20,000
jobs. Most of those have emigrated north as a result of not only the
Canadian content rules but the vast array of incentives, particu-
larly tax incentives, that the Canadians are offering to American
film producers to relocate and go north.
So thank you for those questions. They are important and basic
questions.
Mr. Houghton. Thank you. Mr. Chairman, do I have just a
minute more? I would like to ask Mr. Regula a question on 301.
We are very concerned about 301 and also section 201. Clearly
there are people that want to change that. Do you really hear the
drums beating pretty loudly on that focusing on the ministerial in
Seattle?
Mr. Regula. Well, I think this Subcommittee should address
those issues. I believe Mr. English has a bill that tries to reflect
the experience we have had and proposes some trade law changes.
To summarize what I think will be the situation in Seattle is an
effort by countries to change WTO rules to make it easier to dump
into our markets. I think in anticipation of that, we want to hold
firm because our laws are working. If anything, strengthen them
and streamline them to make it easier for demostic companies to
bring actions.
Ch^airman Crane. Mr. Neal.
Mr. Neal. Mr. Weller, is it your belief that what the Canadians
are doing is legal under existing trade law?
Mr. Weller. We certainly believe there is some legitimate ques-
tions that should be raised. We believe that they are using their
cultural content rules to put the United States at a great disadvan-
tage, particularly when it comes to film production. When you
think about it, the average film production has about $25 million
in economic impact. The average film industry worker makes
$26,000 a year. We have lost 20,000 jobs, most of which have gone
north because of Canadian tax incentives as well as the Canadian
content rules. And when cable channels that you and I have the
opportunity just through freedom of choice if we have cable at
home, Disney, HBO, are prohibited as a result of cultural content,
something is wrong and we should raise that issue and it should
be put on the table.
Mr. Neal. The U.S. film industry still remain a net exporter. Is
it your understanding that they would be reluctant to bring a case?
Mr. Weller. I can’t speak specifically for the U.S. film industry.
I will let them speak for themselves. But our belief is that there
are abuses that do need to be raised. We have seen a growth in
22
film production, but if you see how those jobs have grown, more
and more of them are shifting to Canada. And we have seen in my
city of Chicago, and I imagine if you look at the economic impact
in the Boston area you have probably seen an impact as well, in
Chicago we have seen a 20-percent reduction in the amount of pro-
duction activity as a result of runaway production. In Texas, which
has heen extremely hard hit, almost a third of their film production
has been lost and runaway production has clearly been identified.
And I would urge you to take a look at the monitor study that
was done by the Directors Guild and the Screen Actors Guild,
which we would he happy to provide you a copy of, which numbers
the impacts in the communities such as Boston and Chicago. It is
not just a Hollywood issue.
Mr. Neal. Thank you, Mr. Weller. Thank you, Mr. Chairman.
Chairman Crane. Next, Mr. Foley.
Mr. Foley. Thank you, Mr. Chairman. Mr. Chairman, I want to
thank Congressman Weller and Congressman Becerra for focusing
on the runaway production issue. In the House Entertainment
Task Force we are going to be doing, we hope, extensive study and
have extensive dialog on the issue and I think you raise some very,
very important points and I would like to ask you both, if you can
in the brief time, to comment on some of the incentives that Can-
ada provides as a tax motivation to bring films to Canada. First
Mr. Weller and then Mr. Becerra.
Mr. Weller. Sure. And Mr. Foley, of course I want to thank you
for your leadership and involvement on this issue. Folks a lot of
times when they think of the film industry and movies and tele-
vision production they always think of Hollywood and this is not
just a Hollywood issue. This is a constituent issue for me in Illinois
and I know it is for you in Florida and for Mr. Becerra in Cali-
fornia, but it impacts dozens of urban areas, rural areas as well as
many, many States have found domestic film production to be a job
generator and a job creator.
In fact, in Illinois we had 55 productions that were either fully
or partially filmed in Illinois. So we are one of those States that
recognizes the importance of the film industry.
However, we have a challenge, and the Canadian government,
both the Federal and provincial governments, have been very, very
aggressive in offering financial incentives to television as well as
film production. And these include wage credits, as well as other
forms of tax subsidies which could reimburse in some provinces up
to 40 percent of the cost of the production. Now from the stand-
point of any businessperson if they could find a way to reduce costs
by 40 percent, they are going to consider that other area to do busi-
ness.
So my belief is that we really need to work in a bipartisan way
to find ways of reducing the cost of production in the United States
and keep these jobs here. As I noted in my testimony in this Con-
gress in the last 9 years, and I represent an area with significant
amount of steel production so it is an issue I am very concerned
about, but we have lost 10,000 steel jobs in the past year and this
Congress has given a tremendous amount of attention to that
issue. But unfortunately the administration nor Congress have
paid little attention to the issue that needs to be on the radar
23
screen and that is the issue of runaway production. When you have
lost 20,000 jobs, that is serious. That is twice as many jobs as have
been lost in the steel industry alone.
So clearly the tax incentives as well as the weaker Canadian dol-
lar have contributed to the loss of jobs that have headed north.
Mr. Becerra. Good question, and thank you again for the role
you are playing in this as well. Certainly Florida should be very
concerned because it is one of the States that does have major pro-
duction facilities and sites. More specifically, because I think Mr.
Weller did a very good job of answering the questions, if the gov-
ernment in Canada provides an 11 percent rebate — they don’t call
it a tax credit, they call it a rebate — on all production costs that
are related to labor. So someone who works there, you pay that
person a salary, you get to reduce that in your costs by 11 percent.
The Federal Government in Canada will give you back 11 percent.
On top of that the provincial governments provide a number of in-
centives, rebates, tax credits. So you can get anywhere from 22 up
to 46 percent of a rebate, tax credit, whatever you would like to call
it, an incentive to do business.
On top of that, Canada is now offering to production companies
from abroad from other countries like the United States duty-free
import of its stage facilities, of its production equipment, its photo-
graphic equipment, special effects equipment. All of this now gets
to come in without any charge for importation. So they are saving
quite a bit of money when they go to a place like Canada.
We need to do something to make sure we have a level
playingfield.
Mr. Foley. Thank you very much and I thank you both for your
hard work on this and hopefully, and I know Mr. Weller has asked
Mr. Houghton to potentially have some hearings in depth in a vari-
ety of locations and I look forward to working with both of you. If
I may, Mr. Miller, I cannot escape without a conversation on sugar.
I didn’t expect one today, but I might as well jump in.
The price of sugar has remained stable without question in the
last 9 years. There has been no increase in the wholesale price of
sugar. Why then can you explain the price of the finished product
going up so dramatically? There doesn’t seem to be a nexus be-
tween the cost of sugar and the end retail price.
Mr. Miller. Basic economics 101 said that — you are talking
about if we went to the world market 6 cents a pound you would
not see a price change in products. But that is only one component
of the price and I think you would see price changes in things that
have high content of sugar. There is no justification for us to be
paying 23 cents a pound for sugar in the United States and 6 cents
a pound in Canada. How can we compete? It is the same way we
can’t compete when they have incentives for products like that.
But the most important thing is to have the ability to have clean
hands. We are protecting one product and when we go there and
try to open up markets for dairy products and what have you, it
is not a fair field.
Mr. Foley. My time has expired, but I would love to continue the
dialog. I am sure we will have a chance on the floor.
Chairman Crane. Gentlemen, we appreciate your participation
today, and that concludes this panel.
24
We now welcome our next panel, our witness, Hon. Susan G.
Esserman, Deputy U.S. Trade Representative and you may proceed
when ready. And we would also ask you to try and keep oral testi-
mony in the neighborhood of 5 minutes and all written testimony
will be made a part of the permanent record. Proceed when ready.
STATEMENT OF HON. SUSAN ESSERMAN, DEPUTY UNITED
STATES TRADE REPRESENTATIVE
Ms. Esserman. Thank you, Mr. Chairman, Members of the Sub-
committee. I very much appreciate this opportunity to testify on
the important issue of the U.S. agenda at the World Trade Organi-
zation.
In 4 months. Ambassador Barshefsky will open the WTO’s third
ministerial conference in Seattle. This will be the largest trade
event ever held in America, bringing trade ministers, business ex-
ecutives and citizen groups to Seattle from all over the world. It
will highlight to the world our economic achievements and focus
public attention as never before on the role that trade plays in the
longest peacetime expansion in American history.
We also expect at the ministerial to launch a new round of inter-
national trade negotiations. This round builds upon 50 years of bi-
partisan American commitment to a fair, open, and free inter-
national economy capped by the conclusion of the Uruguay round,
which created the WTO in 1994. In the 5 years since, the WTO has
fully proven its value to the United States and the world. For ex-
ample, Americans have taken greater advantage of a more open
world economy by increasing exports by over $200 billion, contrib-
uting to the economic growth we have enjoyed and helping us gain
high-skill, high-wage jobs.
The WTO’s strong dispute mechanism has strengthened our abil-
ity to ensure compliance with trade agreements and has resulted
in tangible gains for American companies and workers and the
WTO has been vital to our ability to address the financial crisis as
its rules-based system has helped to prevent the outbreak of a cycle
of protection and retaliation which would have hurt the United
States as the world’s largest exporter as much as any other country
in the world.
As we look to a new round, we see immense promise to go fur-
ther and as President Clinton has stated, to create a world trading
system attuned to both the pace and scope of the new world econ-
omy and to the enduring values which give direction and meaning
to our lives.
We are now consulting with this Subcommittee, Members of Con-
gress, interested Americans in business, agriculture, NGOs and
others, about the objectives for the round.
I am going to very briefly outline our core objectives. Our view
is that the core of the negotiating agenda should address market
access concerns, including tariffs, nontariff measures, subsidies and
other measures, with benchmarks to ensure that the negotiations
stay on schedule. These broad-based markets access negotiations
would lead to immense new business and job opportunities for our
workers, companies and farmers.
The agenda and its results must unquestionably be broad enough
to create a political consensus by addressing the market access pri-
25
orities of all members. It also must be manageable enough to be
completed within 3 years and avoid raising major compliance prob-
lems afterward.
This market access agenda would have four substantial compo-
nents: Of course, at the core of the negotiating agenda is agri-
culture and here we seek elimination of export subsidies, reduction
of trade-reducing supports, lower tariffs and better administration
of tariff rates, quotas, disciplines on state trading enterprises, im-
proved market access for least developed countries, and ensuring
that trade in agricultural biotechnology products is based on trans-
parent, predictable and timely processes.
The second core element is service. Our objective here would in-
clude liberalizing a broad range of services, ensuring that the WTO
rules anticipate the development of new technologies, and devel-
oping disciplines to ensure transparency and good governance on
regulation of services.
Third, industrial goods where broad market access negotiation
would buildupon the accelerated tariff liberalization initiative.
Here we seek to reduce existing tariff disparities, use applied rates
as the basis of negotiation, address nontarifif and other measures
affecting market access and, as in agriculture, improved market ac-
cess for the least developed WTO members.
Fourth, we will pursue trade facilitation negotiations which
would remove customs impediments so that exports expeditiously
reach customers in foreign markets. We intend to expand on this
base by pursuing work in several areas. For example, a special pri-
ority will be creating a trade environment that promotes the
unimpeded development of electronic commerce.
Second, we will seek to ensure that trade liberalization promotes
and supports sustainable development. This will include identifying
and pursuing areas such as the elimination of tariffs on environ-
mental technologies and the elimination of fishery subsidies that
both distort trade and harm the environment.
We will use the WTO’s Trade and Environment Committee to ex-
amine the environmental implications of negotiations as they pro-
ceed. We will seek institutional reforms to open up the WTO and
we have made a commitment to conduct an environmental review
of the round.
Third, the relationship between trade and labor will be a high
priority. As President Clinton has said, we must put a human face
on the global economy, giving working people everywhere a stake
in its success, equipping them all to reap its rewards, and provide
for their families the basic conditions of a just society.
The WTO has a role to play in this area, including ensuring re-
spect for core labor standards. Our goal here is to ensure that the
WTO reaps the broadest benefits for the largest possible number
of working people in all nations. To this end, and consistent with
the Uruguay round Agreements Act, we have called for the estab-
lishment of a work program to address trade issues relating to
labor standards.
Finally, the past 5 years revealed areas in which institutional re-
forms would further strengthen the WTO and its base of public
support. A special focus here will be ensuring that the WTO more
26
fully reflects the basic values of transparency, accessibility and re-
sponsiveness to citizens.
Before ending my remarks, Mr. Chairman, let me very briefly re-
view the areas we are seeking to conclude by Seattle which we will
help to build momentum for a successful round. We expect the ac-
cession to the WTO of a number of countries. We are especially
pleased by the progress we have made with the transition econo-
mies as their integration into the world economy will help their re-
form and democratization policies succeed.
We expect to conclude the ongoing review of the WTO’s dispute
settlement mechanism with a focus here on ensuring timely compli-
ance with panel decisions and greater transparency. We will seek
to extend the current standstill on application of tariffs to elec-
tronic transmissions. We will also seek to conclude a multilateral
agreement on transparency in government procurement promoting
new opportunities around the world and reducing the potential for
bribery and corruption. And finally we will be working toward con-
sensus on the accelerated tariff liberalization initiative and on an
expansion of the information technology agreement.
Mr. Chairman, these are ambitious goals in the short term for
the round but they are goals fully in the tradition of the 50 years
of bipartisan commitment to American leadership in world trade.
The task before us now is to bring this work forward into the next
century.
Thank you very much.
[The prepared statement follows:]
Statement of the Hon. Susan Esserman, Deputy United States Trade
Representative
American Goals in the Trading System
Mr. Chairman, Congressman Levin, Members of the Subcommittee:
Thank you very much for inviting me to testify today on the U.S. agenda at the
World Trade Organization.
This November 30th, the United States will host the World Trade Organization’s
Ministerial Conference in Seattle. The Ministerial will be the largest trade event
ever held in the United States, bringing heads of government, trade ministers, busi-
ness leaders and non-governmental associations from around the world and focusing
public attention as never before on the role trade plays in American prosperity. Am-
bassador Barshefsky will have the honor of chairing this meeting.
At the Ministerial, we also expect to launch a new Round of international trade
negotiations, which President Clinton called for in his State of the Union Address.
This has the potential to create significant new opportunities for American workers,
businesses, and farm and ranch families. We also seek to improve the WTO itself,
to make the organization more transparent, responsive, and accessible to citizens.
And we can ensure that its work supports and complements efforts to protect the
environment, improve the lives of workers, reduce hunger and improve health.
We are now building the necessary consensus internationally for an agenda with
broad support in the U.S. and worldwide. And with the Ministerial just four months
away, the Trade Subcommittee has chosen an ideal time to review the United
States’ stake in the trading system and our goals for its future. As we prepare for
the Ministerial and the Round, we look forward to continuing to work closely with
the Subcommittee and with other Members of Congress to develop the strategy and
objectives that will yield the best results for our country and for the world. Today
I would like to review for you our stake in the world trading system; the consulta-
tions we have undertaken in preparation for the Ministerial; and the results we
hope to achieve at Seattle and in the Round.
27
U.S. Stake in the Trading System
The United States is now the world’s largest exporter and importer, carrying on
over $2 trillion worth of goods and services trade each year. The jobs of millions
of American workers, the incomes of farm families, and the prospects for many of
America’s businesses depend on open and stable markets worldwide.
This is the foundation of the leading role we have taken in the development of
the trading system for over fifty years, since the creation of the General Agreement
on Tariffs and Trade in 1948. Throughout these decades, Republican and Demo-
cratic Administrations, working in partnership with Congress, have concluded eight
negotiating Rounds. Each successive Round, culminating in the Uruguay Round
which created the WTO, has opened markets for Americans, and helped to advance
basic principles of rule of law, transparency and fair play in the world economy.
Since the Uruguay Round’s conclusion in 1994, Americans have taken full advan-
tage of these benefits.
• With the opening of world markets, American exports have risen by well over
$200 billion, contributing to the rapid economic growth we have enjoyed, and the
continuation of the longest peacetime expansion in America’s history. This has also
helped us to gain high-skill, high-wage jobs, reverse a 20-year period of decline in
wages, and in fact increase wages by 6% in real terms.
• The strong dispute settlement system created by the Uruguay Round has al-
lowed us to improve significantly our enforcement of the trading rules. Since the
creation of the WTO, we have filed more cases than any other member, and have
a very strong record of favorable settling or prevailing in the cases we have filed.
• And the trading system has been vital to our ability to address the financial
crisis. The commitments WTO members have made have helped to ensure that, with
40% of the world in recession, and six major economies contracting by 6% or more,
we at least so far have seen no broad reversion to protectionism. This is a tribute
to the strength of the trading system we have helped to build. It has prevented
enormous economic damage to our national economy, our farmers and our working
people; ensured that affected countries have the markets essential to recovery; and
helped avert the political tensions that can arise when economic crisis leads to trade
conflicts.
The Work Ahead
Despite these achievements, however, much work remains ahead. The trading sys-
tem can be made more effective in removing trade barriers, more transparent and
accessible in its own workings, and broadened to include nations now outside. With
the Ministerial and Round, we will address issues such as the following:
• World trade barriers remain high in many areas, including in several crucially
important sectors in which U.S. producers are the world leaders. Agriculture and
services are crucially important examples; in industrial goods, we often face signifi-
cant trade barriers, subsidies and other practices overseas which a new Round can
address.
• Our leadership in the scientific and technological revolution creates new chal-
lenges and opportunities for the trading system to address. Electronic commerce and
the growth of the Internet as a medium for trade is an especially important exam-
ple.
• Membership in the WTO can make a major contribution to reform in the tran-
sition economies — that is, the nations in Europe and Asia moving away from com-
munist systems. As successful reformers and WTO members such as Poland, the
Czech Republic and Hungary have observed, WTO membership on commercially
meaningful grounds helps to integrate transition economies into world trade and
make the reforms necessary to create market-based economies, thus promoting long-
term growth and liberalization.
• The results of future WTO agreements can contribute to the world’s efforts to
reduce hunger, protect the environment, improve the lives of workers, promote
health and nutrition, support financial stability, fight bribery and corruption, and
promote transparency and good governance worldwide.
The balance of my testimony today will review our WTO agenda in four areas:
ensuring implementation of the Members’ present commitments; developing the
agenda for a successful Ministerial and a new Round; encouraging the accession, on
commercially meaningful grounds, of new members; and the specific steps that can
advance the broader vision and 3 deld immediate results for the U.S. and world
economies.
28
I. Compliance With Agreements
First of all, we are working to ensure full compliance with existing agreements.
We have met our commitments on time and in full, and we expect our trading part-
ners to do the same.
No matter what the new agenda will he, a fundamental component of our trade
policy will remain the effective implementation of existing agreements. We have
made this point clear to our partners in Geneva, and in this regard, 1999 is an espe-
cially important year. By January 1, 2000, WTO Members must meet Uruguay
Round commitments under the Agreements on Intellectual Property, TRIMs, Sub-
sidies, and Customs Valuation. In succeeding years, final liberalization commit-
ments under the Agreement on Clothing and Textiles as well as certain aspects of
the TRIPS and Subsidies Agreement will phase in. Likewise, Uruguay Round tariff
commitments will soon be realized in full.
These commitments represent the balance of concessions which allowed comple-
tion of the Uruguay Round and have helped realize its benefits since then. The
credibility of any future negotiations depends on their implementation. To ensure
implementation, we use all methods available. This includes use of dispute settle-
ment and U.S. trade laws when necessary, hut also a commitment to the technical
assistance programs that allow some of the developing countries to gain the capacity
to meet complex demands in areas such as services, agriculture and intellectual
property. In our recent submissions to the WTO General Council, therefore, we have
proposed methods to address legitimate problems with compliance now and in the
context of new negotiations, and ways to make technical assistance programs more
effective in promoting full integration into the world economy.
We also are encouraging those WTO Members which have not ratified the Basic
Telecommunications and Financial Services Agreements to do so as soon as possible.
This will not only open markets to U.S. Providers, but ensure that all Members can
benefit from their commitments and that they can win the benefits of competition,
transparency and technological progress these Agreements offer.
II. Developing an Agenda for the New Round
As we address compliance issues, we are also developing the agenda for the new
negotiating Round President Clinton called for in the State of the Union Address,
to be launched at the Ministerial in Seattle.
Our work in this regard has its foundation in a series of domestic consultations
with a wide range of interested groups and individuals: Congress, business groups,
agriculture, labor organizations, academics, environmental groups, state and local
government, and others. This has included many individual meetings; Trade Policy
Staff Committee hearings in Atlanta, Detroit, Los Angeles, Chicago, as well as
Washington DC, to gather ideas on priorities and objectives; and a series of Listen-
ing Sessions jointly with the Department of Agriculture on the agricultural agenda,
traveling to Indiana, Florida, Minnesota, Tennessee, Texas, California, Washington,
Nebraska, Delaware, Vermont, Iowa and Montana to hear directly from farmers,
ranchers and others. We have also, of course, met frequently with our trading part-
ners at the WTO in Geneva, and in meetings such as the US-Africa Ministerial,
FTAA conferences, the US-EU Summit, the Quad meeting in Tokyo and others to
review their priorities, exchange views and develop consensus.
Given our consultations and conversations to date, we believe the agenda should
take the following shape:
• The core of the agenda should address market access concerns including agri-
culture, services and industrial goods, with benchmarks to ensure that the negotia-
tions remain on schedule for completion within three years.
• The agenda should also pay special attention to areas in which trade policy can
encourage technological progress, notably in electronic commerce.
• This agenda should support and complement efforts to improve worldwide en-
vironmental protection, and ensure that trade policy yields the maximum benefit for
the broadest range of workers.
• This negotiating agenda should be complemented and balanced by a work-pro-
gram to address areas in which consensus does not yet exist for negotiations; and
By a series of measures to reform the WTO, with a special focus on transparency
and citizen access.
We can decide on the precise structure for negotiations once consensus on the
agenda is achieved. It is clear, however, that the agenda and final result must un-
questionably be broad enough to create a political consensus by addressing the mar-
ket access priorities of all Members. At the same time, we should ensure that it is
manageable enough to complete within three years and avoid raising major compli-
ance problems afterwards.
29
Specifically, our ideas would include the following:
1. Market Access
Market access negotiations, as the core of the negotiations, should cover the built-
in agenda of agriculture and services, and also address non-agricultural goods.
In agriculture, in liberalizing trade we have the potential to create broader oppor-
tunities for American farm and ranch families, fight hunger and promote nutrition
worldwide through ensuring the broadest possible supplies of food at market prices,
and help to protect the land and water by guaranteeing the right to use modern
science and reduce trade-distorting measures which increase pressure on land,
water and habitat. To secure this opportunity, we would set the following objectives:
• Completely eliminate, and prohibit for the future, all remaining export sub-
sidies as defined in the Agreement on Agriculture.
• Substantially reduce trade-distorting supports and strengthen rules that en-
sure all production-related support is subject to discipline, while preserving criteria-
based “green box” policies that support agriculture while minimizing distortion to
trade;
• Lower tariff rates and bind them, including but not limited to zero/zero initia-
tives;
• Improve administration of tariff-rate-quotas;
• Strengthen disciplines on the operation of state trading enterprises;
• Improve market access through a variety of means to the benefit of least-devel-
oped Members by all other WTO Members; and
• Address disciplines to ensure trade in agricultural biotechnology products is
based on transparent, predictable and timely processes.
In services, American industries are the most competitive in the world, as dem-
onstrated by our $258 billion in services exports last year. The Uruguay Round has
created an important set of rules, but in many cases, actual sector-by-sector market-
opening commitments simply preserved the status quo. Effective market access and
removal of restrictions will allow U.S. providers to export more efficiently, and help
address many broader issues worldwide. Examples include improving the efficiency
of infrastructure sectors including communications, power, transport and distribu-
tion; improving environmental protection services; easing commerce in goods, thus
creating new opportunities for manufacturers and agricultural producers; and help-
ing to foster financial stability through competition and transparency in financial
sectors. To realize these opportunities, objectives would include:
• Liberalize restrictions in a broad range of services sectors;
• Ensure that GATS rules anticipate the development of new technologies;
• Prevent discrimination against particular modes of delivering services, such as
electronic commerce or rights of establishment; and
• Develop disciplines to ensure transparency and good governance in regulations
of services.
In industrial goods, further market-opening will help Americans promote high-
wage, high-skill jobs and create economies of scale that allow U.S. firms to invest
more in research and development and become more competitive. Here, broad mar-
ket access negotiations in the next Round would build upon the Accelerated Tariff
Liberalization initiative, which calls for the early liberalization of eight specific sec-
tors and which we hope to complete by the time of the Ministerial, through objec-
tives including:
• Reduce existing tariff disparities;
• Provide recognition to Members for bound tariff reductions made as part of re-
cent autonomous liberalization measures, and for WTO measures.
• Use of applied rates as the basis for negotiation, and incorporation of proce-
dures to address non-tariff and other measures affecting market access; and
• Improve market access for least developed WTO Members by all other Mem-
bers, through a variety of means.
2. Additional Issues
Most delegations agree that negotiations should be completed within three years.
Given this reality, and in order to find an appropriate balance of interests and a
convergence of views, certain issues might be appropriate for a forward work-pro-
gram that would help Members, including ourselves, more fully understand the im-
plications of newer topics and build consensus for the future. In addition, several
broader issues will inform our work on the core market access issues. Issues to ad-
dress would include:
30
а. Electronic Commerce
For example, one of the most exciting commercial developments of recent years
has been the adaptation of new information and communications technologies, nota-
bly the Internet, to trade. This has very important implications for reducing the cost
of goods to consumers, improving the efficiency of companies, and for speeding
growth in developing regions, as Internet access greatly reduces the obstacles entre-
preneurs, artisans and small businesses face in finding customers and managing pa-
perwork.
It is critical that the WTO act now to ensure that artificial barriers do not delay
or block the benefits of this new method of conducting trade. We have therefore pro-
moted a broad electronic commerce agenda at the WTO and elsewhere, including a
work-program to ensure technological neutrality in the development of WTO rules,
and capacity-building efforts to ensure that developing countries have access to the
Internet. We are encouraged that most WTO members agree that all e-commerce
activities are covered by the traditional WTO disciplines of transparency, non-dis-
crimination and no unnecessary obstacles to trade. As I will note later, our top im-
mediate priority is to ensure that cyber-space remains duty-free — that is, that coun-
tries do not apply tariffs to electronic transmissions.
б. Sustainable Development and Committee on Trade and Environment
In all these areas, we intend to take special care to ensure that trade liberaliza-
tion promotes and supports sustainable development. In particular, we will pursue
trade liberalization in a manner that is fully consistent with and supportive of this
Administration’s strong commitment to protection of the environment. This means
a number of things.
First, it means that we must consider the environmental implications of the nego-
tiations from start to finish. In this connection. President Clinton has committed to
an environmental review of the likely consequences of the Round and we have called
on other countries to do likewise. In the same vein, we have proposed using the
WTO’s Trade and Environment Committee to discuss the environmental implica-
tions of negotiations as they proceed.
Second, it underscores the importance of institutional reforms to ensure that the
public can see the WTO and its processes, notably dispute settlement, in action and
contribute to its work. Stakeholders have an important role to play in helping to
assess the environmental implications of the new round.
Third, it means pursuing trade liberalization in a way that is supportive of high
environmental standards. This means, among other things, that the WTO must con-
tinue to recognize the right of Members to take science based measures to achieve
those levels of health, safety and environmental protection that they deem appro-
priate — even when such levels of protection are higher than those provided by inter-
national standards.
Fourth, it means that we have a responsibility for identifying and pursuing “win-
win” opportunities where opening markets and reducing or eliminating subsidies
hold promise for yielding direct environmental benefits. Examples we have identi-
fied thus far include elimination of tariffs on environmental goods through the Ac-
celerated Tariff Liberalization initiative; liberalization of trade in environmental
services; elimination of fishery subsidies that contribute to overcapacity; and contin-
ued liberalization in the agriculture sector.
Fifth, it means that we will promote strengthened cooperation between the WTO
and other international organizations dealing with environmental matters. In this
connection, we are pleased that discussions are going on right now between the
WTO and the United Nations Environment Program on increasing cooperation.
We have tabled a number of proposals to advance these objectives. Also, we are
carefully examining the proposals put forward by other countries on trade and envi-
ronment. In addition, as we look at other proposals from other countries that are
not trade and environment proposals per se, we will be considering how they relate
to the environment. In all of this work, we welcome the input of this Committee
and all stakeholders.
c. Trade and Labor
Likewise, the relationship between trade and labor is an especially important pri-
ority. As President Clinton said to the ILO Conference in June:
“We must put a human face on the global economy, giving working people every-
where a stake in its success, equipping them all to reap its rewards, providing for
their families the basic conditions of a just society.”
Trade policy has a role to play in the realization of this vision, and development
of the trading system must come together with efforts to ensure respect for core
31
labor standards, and our goal is to ensure that the WTO brings the broadest bene-
fits for the largest possible number of working people in all nations.
In the Declaration issued at the WTO’s First Ministerial Conference in Singapore,
WTO members renewed their commitment to the observance of core labor stand-
ards. This was the first time such a group of Trade Ministers had formally ad-
dressed labor standards. While this was an important first step, we believe that
more attention to the intersection of trade and core labor standards is warranted
as governments and industries wrestle with the complex issues of globalization and
adjustment, and that the WTO has a role to play in the process. We are continuing
to consult with Congress and the labor community in the U.S., as well as with WTO
members who share our interest, on contributions the WTO can make to the goal.
In January, we submitted a proposal for the establishment of a work-program in
the WTO to address trade issues relating to labor standards, and areas in which
Members of the WTO would benefit from further information and analysis on this
relationship and developments in the ILO. In addition, we will seek enhance institu-
tional links between the ILO and the WTO through mutual observer status, to help
facilitate collaboration on issues of concern to both organizations. We will consult
with the Subcommittee on these matters in the months ahead.
Work at the WTO on these issues is, of course, part of a broader effort centered
on the International Labor Organization, which with the President’s leadership re-
cently concluded a landmark Convention on the Elimination of the Worst Forms of
Child Labor. This builds on a June 1998 Declaration on Fundamental Principles and
Rights covering core labor standards as well as a follow-up mechanism. In support
of this work, the President announced in his 1999 State of the Union address a Core
Labor Standards and Social Safety Net Initiative, including a budget request for $25
million for multilateral assistance to be provided through the ILO, to help countries
provide basic labor protections and improve working conditions. We also, of course,
make use of the labor policy tools in our trade statutes, notably the labor condition-
ality under the Generalized System of Preferences, to promote respect for core labor
standards.
3. Institutional Reform
The past five years of experience with the WTO have also revealed areas in which
the institution can be further strengthened. We thus seek to ensure that the WTO
more fully reflects the basic values of transparency, accessibility and responsiveness
to citizens; ensure that its work and that of international organizations in related
fields are mutually supportive and promotes as much as possible the larger vision
of a more prosperous, sustainable and just world economy; and strengthen public
support for the WTO. Our proposals here include:
Institutional Reforms that can strengthen transparency, and build public support
for the WTO by:
• Improving means for stakeholder contacts with delegations and the WTO; and
• Enhancing transparency in procedures to the meiximum extent possible.
Capacity -building, to ensure that the WTO’s less advanced members can imple-
ment commitments, use dispute settlement effectively and take meiximum advan-
tage of market access opportunities. This plan is based on our close consultation
with our partners in Geneva to ensure that technical assistance and capacity-build-
ing programs meet their actual needs and practical experience. This is to our advan-
tage, as it will help these countries grow and become better markets for U.S. goods
and services. Specific areas here would include:
• Improve cooperation, coordination and effectiveness among international orga-
nizations in identifying and delivering technical assistance;
• Build upon and expand the “Integrated Framework” concept adopted to help
least developed countries implement commitments;
• Ensure the most effective use of resources on technical assistance programs;
• Strengthen capacity-building in regulatory and other infrastructure needs; and
• Explore a development partner program for the least-developed nations.
Trade Facilitation, which will ensure that U.S. small and medium-sized busi-
nesses as well as less developed economies can take full advantage of the market-
opening commitments created by the Round. Here, objectives would include:
• Clarif 3 dng and strengthening the transparency requirements of WTO Agree-
ments; and
• Helping to improve customs procedures, so as to increase transparency and fa-
cilitate more rapid release of goods, ensuring that our exports reach foreign markets
more rapidly.
32
III. Toward the Ministerial
In the months ahead, we will be working with our trading partners to develop
consensus on the negotiating agenda (including issues of timing, and benchmarks
to ensure that the negotiations begin and end promptly), preparing logistically for
a successful meeting in Seattle, and continue to consult with the Subcommittee and
Congress as a whole on specific negotiating objectives in each area. At the same
time, we also hope to reach consensus on several initiatives which would both help
build the foundation of a successful Round, and take advantage of existing opportu-
nities to open markets and reform the WTO. They would include:
1. Accessions
First, the accession of new WTO Members, on commercially meaningful grounds,
is a major endeavor and critical for the creation of a fair, open and prosperous world
economy.
Since 1995, seven new Members have joined: Bulgaria, Ecuador, Kyrgyzstan, Lat-
via, Mongolia, Panama and Slovenia, with Estonia soon to follow. With 31 more ac-
cession applicants, we look forward to further accessions on a similar basis in the
months ahead. Georgia just completed its working party process and a number of
others may soon follow, in advance of the Seattle meeting. Already this year, we
have completed bilateral negotiations with Taiwan and made significant progress on
the accessions of Albania, Armenia, China, Croatia, Jordan, Lithuania, Moldova and
Oman. We have also held important and fruitful meetings with Russia, Saudi Ara-
bia and Ukraine.
Our hope is that a number of these applicants will have completed their acces-
sions by November. Clearly, however, not all of the applicants will complete their
accession processes by the Ministeriaf and the opening of the new Round. In these
cases, as was the case in the Uruguay Round, we would work with Congress and
our trading partners to develop an acceptable formula under which these economies
could be involved in the new negotiations while moving ahead with accession.
2. Dispute Settlement Review
Second, to promote American rights and interests, and to ensure the credibility
of the WTO as an institution, a dispute settlement system that helps to ensure com-
pliance with WTO agreements, provides clarity in areas of dispute, and is open to
public observers is of great importance.
Our experience thus far with dispute settlement has been generally positive: we
have used the system more than any other WTO member, with many successful re-
sults. The European Union’s failure to implement panel results in two cases, how-
ever, has been very troubling, and we hope to ensure that in the future, losing par-
ties comply or face penalties in a more timely fashion. Likewise, we believe the sys-
tem can be more responsive to citizen concerns in a number of ways.
Thus, in the ongoing Dispute Settlement Review at the WTO, we are seeking
greater transparency and ensuring timely implementation of panel findings. We are
particularly interested in providing for earlier circulation of information on panel re-
ports, making parties’ submissions to panels public, allowing for submission of ami-
cus briefs and opening the hearings to observers from the public. Our hope is to con-
clude this work by the Ministerial.
3. Electronic Commerce
As I noted earlier, we have begun a long-term work program in the WTO to en-
sure the unimpeded development of electronic commerce. In the immediate future,
our priority is to avoid the imposition of tariffs on electronic commerce. No WTO
member now considers electronic transmissions as imports subject to customs du-
ties — a policy affirmed when we led in securing in last May’s “standstill” on e-com-
merce tariffs. We are working to secure consensus on extending this policy by the
Ministerial, which would help us prevent the imposition of an enormous new burden
on this new method of trade.
4. Accelerated Tariff Liberalization and Information Technology Agreement 11
Fourth, we hope to achieve agreements which expand market access opportunities
in areas of interest to U.S. producers and to our trading partners by the time of
the Ministerial. The two areas of special concentration include:
• Accelerated Tariff Liberalization — Eliminating or harmonizing tariffs in chemi-
cals; energy equipment; environmental goods; fish and fishery products; gems and
jewelry; medical equipment and scientific instruments; toys; and forest products;
and
33
• ITA II — An “Information Technology Agreement 11” adding new products (e.g.
radar equipment, computer accessories, consumer electronics and printed circuit
boards) to the sectors already covered by the first ITA.
5. Collaboration with Other International Organizations
Fifth, we are working toward making the WTO more able to collaborate with
international institutions to support economic stability and stability through mutual
observer status, joint research programs when appropriate, and other specific initia-
tives. Such organizations would include the World Bank, the International Mone-
tary Fund, the International Labor Organization, the UN Environmental Program,
the UN Development Program, the OECD, UNCTAD, and others.
6. Transparency
Sixth, specific measures to improve transparency, both as an institutional matter
within the WTO, and in governance worldwide. The two priorities for the months
ahead include:
• WTO — The WTO should ensure meiximum understanding and access to meet-
ings and procedures, consistent with the government-to-government character of the
institution. As I noted earlier, dispute settlement is a special focus for this work.
Essential goals include such additional measures as more rapid publication of panel
reports, and more rapid de-restriction of documents.
• Transparency in Government Procurement — The WTO can also help to promote
transparency and good governance worldwide. In this regard, an agreement on
transparency in procurement would create more predictable and competitive bid-
ding, which would reduce opportunities for bribery and corruption, and help ensure
more effective allocation of resources.
7. Recognizing Stakeholder Interests
Seventh and finally, it is clear that the interest in the WTO and its work of civil
society organizations (including businesses, labor organizations, agricultural pro-
ducers, women’s organizations, environmental groups, academic associations and
others) is growing. Likewise, delegations and WTO staff will benefit from hearing
a broad range of opinions and views on the development of trade policy. We are thus
working toward consensus on methods for such stakeholder organizations to observe
meetings as appropriate, and share views as delegations develop policy.
Conclusion
In summary, Mr. Chairman, the United States in the months ahead has a re-
markable opportunity.
Our predecessors in ten Administrations and twenty-five Congresses have left us
a legacy of bipartisan commitment and achievement in creating a fair and open
world trading system. As a result of their work, American workers are more produc-
tive, American companies more competitive and American families more prosperous
than ever before.
In the years ahead, we can do the same for the next generation, if we work to-
gether to ensure that the WTO is adapted to address new areas of commere, per-
sistent trade barriers, and the concerns of our citizens. As host and Chair of the
Seattle Ministerial Conference, we have a keen responsibility to help create and
bring to completion the agenda that will realize this vision. We look forward to
working in partnership with the Members of this Committee to do so.
Thank you very much.
Chairman Crane. Thank you, Ms. Esserman. How does the ad-
ministration foresee the issue of labor being addressed in the up-
coming WTO ministerial?
Ms. Esserman. Mr. Chairman, we are working on this issue in
a number of ways, and we have been consulting broadly on the
issue with the labor community, with your Subcommittee, and
other Members of Congress. Let me outline how we see it to date,
but I will tell you that we are still in the process of formulating
our ideas here.
34
First, as I said, we think it is very important that the WTO en-
sure the maximum benefits for the largest number of people, work-
ing people in the world. And there are a number of things that we
are thinking about to support that goal. First, we think it is impor-
tant that the WTO have a better labor perspective and to that end
we support International Labor Organization observership.
Also, the United States on a routine basis raises, in all the re-
views of individual countries — the reviews of their trade regimes —
we raise to the attention of the WTO these countries’ compliance
with core labor standards.
Third, we have been working and trying to expand the base of
countries that share our perspective on the importance of respect
for core labor standards.
And fourth, we have indicated to the WTO that we intend to pur-
sue a work program on the relationship between trade and labor
as called for in the Uruguay Round Agreements Act.
Chairman Crane. There is strong support in the U.S. agriculture
community for treating the negotiations as a single undertaking
that encompasses all sectors and this group suggests that a com-
prehensive set of concessions has to be on the table in order to
achieve the reforms we are seeking in agriculture from our trading
partners. Many U.S. industrial and service sectors on the other
hand want to negotiate, in effect, “early harvests” on some issues.
How does USTR propose to reconcile these two divergent ap-
proaches to the overall structure of the negotiations and is there
a way to assure both groups that their interests will not be com-
promised?
Ms. Esserman. Mr. Chairman, I do believe there is a way to en-
sure both groups that their interests will not be compromised. Here
is how we are approaching this issue.
First, we have said repeatedly. Ambassador Barshefsky has said
repeatedly, it is most important that as we shape the structure of
these negotiations, we first decide appropriate subjects for negotia-
tion. Once we decide the subjects for negotiation, then we will de-
termine how all of these subject areas will be negotiated.
In other words — let me just say, basically we envision that the
core of the negotiations will be market access. And here what we
would envision is that at the end, we would have a broad basis of
areas for concessions so that there would be a sufficiently attrac-
tive package for all of these groups. The way in which we believe
we can fit the interests of both groups is that we are pursuing
early results for the eight sectors involved in the accelerated tariff
liberalization initiative and here we believe that the way to bridge
the gap is that the ultimate final implementation of the results
with respect to these eight sectors would be contingent on the com-
pletion of an overall broad package at end of the round.
Chairman Crane. It has come to my attention that U.S. busi-
nesses, particularly accounting firms, are being handicapped by na-
tional laws and procedures which restrict their ability to get the
right people to the right place at the right time. I was pleased to
see mention a movement of natural persons as an area ripe for ne-
gotiation in your recently tabled services paper. Can you elaborate
on our plans to proceed on this important issue in the upcoming
round of negotiations?
35
Ms. Esserman. At this point, let me just say that that is a broad
area for pursuit in the services negotiation. At this point I don’t
have further details about it, but I would be happy to follow up
with you on this issue.
Chairman Crane. Thank you. And finally, if we are serious
about reducing trade barriers we will have to acknowledge that it
is a reciprocal proposition and we cannot start by taking whole in-
dustries off the table. If we do, other countries will do likewise.
And our opportunities to open foreign markets will be gone. Does
the administration agree that our peak tariffs on agricultural prod-
ucts are subject to negotiation in the Seattle Round? And why isn’t
a formula approach to tariff cuts the fairest way to proceed?
Ms. Esserman. Let me just say that we have not just determined
the best way to proceed. Obviously, we want to achieve the max-
imum benefits for our exporting community, and so we haven’t de-
termined, given the fact that overall our tariffs are lower, substan-
tially lower than other countries’ tariffs, whether or not a formula
approach would be the best way to proceed.
Chairman Crane. Thank you very much. Mr. Levin.
Mr. Levin. Thank you. Welcome. Your testimony did touch this
more comprehensively than you had a chance to recite here, be-
cause of time, on issues of compliance and transparency. And I just
want to urge, as you know, that there be some considerable empha-
sis on these issues. They are part of the ongoing or not yet ongoing
discussions with China and WTO. And there are immense problems
of transparency of compliance that need to be resolved in that econ-
omy and operating in that economy. And I do think that our WTO
accession agreements have to address these issues.
Also, though, there has to be a regimen within the WTO on com-
pliance and transparency that applies to everybody, including new
members and emerging economies where transparency often is
pretty opaque. So I welcome your emphasis on those areas.
Mr. Crane raised the issue of the role of labor in Seattle. So I
just want to say a few words about that and you can comment if
you want. You said the issue of labor will be a high priority, and
I hope everyone hears that. It may be a bit confusing when you say
the core of the negotiations is market access. It is not clear to me
how you put those two together plus your other high priorities, and
maybe there needs to be some attention, further attention to the
language that is used. But let me say just a word so we all under-
stand what is involved, you cited the President in his statement at
the ILO about people everywhere having a stake in the progress in
providing everywhere that families have the basic benefits of a just
society. The President has repeated elsewhere in his talk about a
leveling up, not a leveling down. I think everybody should under-
stand what is at stake in terms of U.S. policy is indeed a concern
about the workers everywhere but a primary concern about people
who work in this country, and the labor market issue relates glob-
ally, but also primarily to the impact of trade agreements on Amer-
icans.
So I hope you will continue your consultations. I hope you will
be direct. It is the only way we are going to have enough discussion
so we prepare for Seattle. It gets a little fuzzy when you talk about
a work program. I don’t think anybody or most people know what
36
that means. I believe there needs to be a hard fight to set up a
working group that relates to the labor market issues that are vital
increasingly within the trade equation. And we just all have to dis-
cuss it and prepare for that and be prepared to make a hard fight
at Seattle. As you say, it is a high priority and when anybody says
it is a high priority, the test of it is how hard they fight for it.
I don’t know if you want to respond. There are lots of other parts
of your testimony and we are eager to consult and, more than con-
sult, discuss these issues with you as well as China-WTO if the ne-
gotiations recommence.
I want to end by just emphasizing there isn’t much time for a
major round. We have only a few months now to fully get ready
and August isn’t, except for some of you and maybe some of us, the
busiest work period. So I wish you good luck and I just hope that
you will be clear and direct. And if there is controversy, let’s try
to have it energize us instead of freezing us in place. End of ques-
tion.
Chairman Crane. Mr. Houghton.
Do you want to respond?
Ms. Esserman. I would just say. Congressman Levin, I very
much appreciate your remarks and we certainly share your concern
and interest in this issue and we look forward to working with you
and other Members of the Subcommittee to make sure the goals
and the initiatives in this area are concrete.
Mr. Levin. Thank you.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you very much. Well, Ms. Esserman, you
do a great job. It is wonderful to have you here. Thanks very much
for your testimony. I really have two basic questions. One is in
terms of 301. Is there any thought of the administration reopening
any of the antidumping and implementing provisions that were ne-
gotiated in the Uruguay Round in Seattle? Then, maybe could you
take a crack at that. Then I got another question.
Ms. Esserman. I can answer that very clearly. The United States
is firm that it is not appropriate to have antidumping as a subject
for negotiation in the next round.
Mr. Houghton. OK. Well, that is good. Now, the Secretary, look-
ing at your testimony, it seems to me that it is working up toward
the Seattle Ministerial Conference. There is really a set of two cat-
egories: one is the housekeeping, the other is the content. House-
keeping meaning accessions, dispute, settlement review, collabora-
tion, transparency, recognizing the stakeholder interest, things like
that.
Now, they may be most important but it would seem to me in
terms of the overall thrust of trying to generate business for the
United States, that the accelerated tariff liberalization and elec-
tronic commerce are going to be really, really critical. You talk
about market access. You know, it seems to me that we talk mar-
ket access and many of the people that we sell to or import from
talk market access, but there is no sort of monitoring. You obvi-
ously can see this in terms of our current account deficit. So when
we are talking about things that produce more business, produce
more jobs, produce more opportunities, is there any way to monitor
that market access so that we really know where we are going?
37
Ms. Esserman. Actually now that the WTO is a full institution
there is a much greater ability to monitor countries’ compliance
with commitments. Perhaps the most visible way in which we en-
force the commitments is by filing dispute settlement cases. But
there are also each — there are a number of formal Committees in
the WTO which serve as a forum for raising concerns, about wheth-
er a member has complied with their commitment, to try to foster
compliance, to resolve an issue before a dispute settlement needs
to happen. And there is also a way to monitor compliance with
commitments, for example, whether or not countries are reducing
tariffs according to their commitments, whether or not they are
providing the true commitments that they signed onto in the serv-
ices agreement.
So there is a vehicle for doing that now that the WTO is a full
institution.
Mr. Houghton. Yeah, but there are nontariff barriers, such as
in the distribution systems, so that if you take a look at the raw
numbers in terms of products imported let’s say from x country and
exported and it is going the wrong way for us and it is going to
be a long time until another ministerial and you have all these
Committees that you have got to go to, isn’t there a sort of simple
index that we can use to say, hey, you know, this isn’t really quite
what we had in mind?
Ms. Esserman. You mean a sort of formula for addressing some
of the things?
Mr. Houghton. Yeah.
Ms. Esserman. We are working on some of these issues. These
are the very things that we are focusing on in this next round. A
big area for the new round, as I mentioned, is services. And here
particularly in the distribution area there are a number of barriers
to our ability to effectively sell and have effective distribution in
foreign markets, and that is going to be a high priority for us and
we will think very carefully about your question.
Mr. Houghton. Thanks very much. Thank you, Mr. Chairman.
Chairman Crane. Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman. Will there be a direct op-
portunity for labor and business to present their recommendations
to the ministers at the gathering?
Ms. Esserman. For labor? I am sorry.
Mr. Neal. Will there be a direct opportunity for labor and busi-
ness groups and other vital groups as well to present their rec-
ommendations and perhaps policy suggestions to the ministers?
Ms. Esserman. Yes. First of all, there is an extensive and elabo-
rate process here in the United States in which we consult and re-
ceive advice both written and with extensive meetings here on a
ongoing basis. But we do think it is very important for members
of the civil society to have direct access to the ministers, not only
just to provide submissions but we had an experiment in the WTO
this year in doing just that. We had a high-level meeting on trade
and the environment in which members of the civil society not only
presented their submissions but also had a chance to present their
views publicly to the 135 member governments. We are also con-
templating doing the very same thing on a range of issues the day
before the ministerial begins in Seattle.
38
Mr. Neal. I see. Now, is there considerable amount of propping
that has to occur for the other member nations?
Ms. Esserman. Is there a considerable amount of?
Mr. Neal. Propping. Do you have to prepare them for the kinds
of questions that they might get from labor and environmental
groups, for example?
Ms. Esserman. No, I think that there is a fair, there is a fair
amount of attention and interest to this issue, but I guess the an-
swer is no and yes. Yes, in the sense that, as you may know, many
governments around the world, countries around the world do not
share our interest in labor. So there is a great deal of work that
needs to be done. And we are going to talk to other governments
about the importance of including the labor perspective more
broadly into the WTO.
Mr. Neal. So you are suggesting, then, that this is going to be
a direct participation, this won’t be filtered through?
Ms. Esserman. We are seeking to include mechanisms for direct
participation, for venues for direct participation by labor groups, by
environmental groups, so that they have a chance to directly pro-
vide their views to the ministers in the WTO. This is something
that we have been urging on the other countries in the WTO. They
don’t necessarily share our interest in doing this, but we very, very
strongly advocated doing it in the environmental area. We think it
was a successful meeting and we are going to continue to advocate
doing that in other areas as well.
Mr. Neal. So this would be for labor, environmental and busi-
ness groups; they would all have that opportunity?
Ms. Esserman. Yes, business groups, consumer groups, members
of society and businesses.
Mr. Neal. Thank you.
Chairman Crane. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman. And welcome.
Ambassador Esserman. It is delightful to have you with us. We
think you are doing a fine job and appreciate it very much. And
I might add my invitation to others that Mr. McDermott and I
have extended to everybody to come to Seattle in the fall and we
are hopeful that this Subcommittee will be there in some form. We
look forward to being involved as closely as we can be to make it
successful.
I am concerned about the recent ESC, Foreign Sales Corporation
ruling. And I am very concerned about its impact on American
business in making us less competitive, which after all was the rea-
son for starting the ESC provisions in the first place. I am won-
dering, I am interested in knowing what you think will be the ef-
fect of the loss of ESC on industries that are important to me, the
high-tech industry, for example, agriculture, that is an important
industry to us in Washington State. And I am wondering what you
plan to do, whether you are going to appeal, but I wonder first if
you would give us some sense of what you believe the impact would
be.
Ms. Esserman. Well, I do think it is premature to determine the
impact of this. First, we did receive a report that was unfavorable
to us. It is not finalized yet. So this is the first step in the process.
We think the panel that made — that wrote that report was plain
39
wrong. So we are looking very carefully at all of our options and
including appeal, which we are looking at quite seriously. Espe-
cially, given the importance of the issue. But it is really premature
to assess the impact because there are many more steps still in the
process. Certainly we share your concern about the decision and
the importance of this.
Ms. Dunn. You mentioned earlier that you were working toward
the accession of several countries to the WTO. I have not heard a
discussion of that before because we are all so focused on China I
believe right now and the Republic of China and the PRC and their
accession. Could you give us some sense of what is happening with
other nations and what you expect to see in terms of accession of
other nations at the fall WTO?
Ms. Esserman. Yes. China does receive a huge amount of atten-
tion here, but meanwhile we have been making a lot of progress.
A number of eastern — central European countries have been mak-
ing a lot of progress in their accessions and we may see about 8
to 10 accessions by the time of the ministerial, including Baltic
countries, Albania, Georgia, Armenia, and others so we view this
as a very important development because here this great number
of countries are making the very significant reforms that are nec-
essary to transform their economies into market economies.
Ms. Dunn. And that is so helpful because they will be living
under the rules from then on. It will be very useful to us since we
have been so forthright and open to other nations.
Let me ask you one other question. You had mentioned in re-
sponse to Congressman Crane’s question that you were going to
continue negotiating on accelerated tariff reduction but any results
might take effect sometime later, I thought is what you said. We
are concerned on behalf of certain industries. I represent the forest
products industry, for example, who have been working on this
issue for years and really would like to see it move along. I am
wondering if you could clarify that for me so that I could pass along
to them the sense of the USTR.
Ms. Esserman. Absolutely. The accelerated tariff liberalization
initiative is a very important priority for us. The President moved
forward on this in 1997 in Vancouver and we have been pursuing
it since. And last year at the APEC leaders meeting it was deter-
mined this issue would go into the WTO to see conclusion in 1999
and we are continuing to work on that. It is very important to seek
early results in these areas.
As you know, there have been concerns that Chairman Crane
mentioned among the agricultural community and, working with
the agricultural community and those interested in these sectors,
we believe that we have come up with an approach that addresses
the interests of these sectors as well as the agricultural commu-
nity. And here there would be an implementation of results, provi-
sionally, for example a lowering of tariffs early, but the final imple-
mentation would be contingent and a part of the overall package
at the end of the round. And that is how we see fitting the two to-
gether.
Ms. Dunn. Good. Thank you very much. I might just say, Mr.
Chairman, when we were in New Zealand last December we had
the opportunity to sit down with Mike Moore, who will be the new
40
head of the WTO, and New Zealand was a very, very strong part-
ner with us at APEC and supported our position completely on
this. So I think that makes it more hopeful.
Thank you very much.
Ms. Esserman. Might I just add right there, if I could, just to
say, number one. New Zealand is very active in this initiative that
is so important to us, but also just to say how delighted we are that
we have Mike Moore as the Director General of the WTO. I know
that you had expressed your views on the importance of having
him here. He, I think, will be terrific for the WTO, for the United
States, because he appreciates the importance of trade liberaliza-
tion to our future prosperity. He has a common touch. I think he
will be a very effective advocate of trade to our people and the
world, and I think he understands very much the importance of the
American market.
Chairman Crane. To which I will add amen.
Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman. Ambassador Esserman,
thank you for being with us. In your testimony you make mention
that one of your goals is to reduce existing tariff disparities in in-
dustrial goods. I don’t think there is any sector, at least in the
American economy, that was required to make greater concessions
under the Uruguay round than the textile and apparel industry.
And I know the President, I have some of his quotes here that
he has made with regard to that in November of 1993. The Presi-
dent said, and I quote, “I do recognize and appreciate that the U.S.
textile and apparel sector has been asked to make substantial con-
cessions under the Uruguay round.” he went on to say that the
U.S. will, quote, “insist that our willingness to phase out textile
quotas be linked directly to the achievement of effective market ac-
cess in individual countries by removal of nontariff barriers and
lowering tariffs.”
I understand that countries — Pakistan, for example, are asking
that we accelerate the removal of some of our barriers, yet in some
areas, Brazil, Argentina, Pakistan, India, we have the most dif-
ficult time getting some of our products into those countries. Given
the concessions that this sector of our economy has made, don’t
you — let me ask you, have you taken a posture, any position with
regard to textile and apparel industry? Are you going to try to pro-
tect those industries from further concessions being made in this
ministerial and what are you planning to do to try to open up those
other markets that are out there for our U.S. textile and apparel
products?
Ms. Esserman. You are quite right. Congressman, that there
have been a number of these countries calling for us to accelerate
our liberalization of our expiration of the quotas in textiles and we
have made quite clear that that is simply not in the cards. We will
not be doing that. And at the same time we have raised concerns
about the lack of openness of their market, for example, India in
particular. And so, we have very much been clear on this issue in
Geneva.
Mr. Becerra. So I take that as a clear sign you will do what you
can to protect the industry as it is and also open up those markets
41
that agree they would participate in the free trade of those prod-
ucts.
Ms. Esserman. We are going to be pursuing opening up these
markets and we have no interest in accelerating the expiration of
these quotas.
Mr. Becerra. Thank you for that. I don’t know if you heard all
of the testimony by Members of Congress, but Congressman Weller
and I focused on the issue of cultural content rules. Can you tell
me if this is at all an issue that you are planning to address at the
ministerial in Seattle, the whole issue of cultural content? I know
it is a big issue with Canada, obviously France, other countries as
well. Give me the Trade Representative’s position at this stage on
that issue.
Ms. Esserman. Let me just say generally that the issue of cul-
ture is a big and important issue and we need to work together to
ensure that we are most effectively addressing the issue. Of course
all countries have a right to preserve their cultural heritage, but
what we are concerned about is when those measures are just a
disguised form of protectionism.
Mr. Becerra. Are you planning to raise that though in Seattle?
Ms. Esserman. We are going to be raising and addressing these
issues and we want to work with you to make sure that we are ad-
dressing your specific issue. Canada last week in Geneva raised the
issue of culture. It wasn’t quite in the form of a proposal, we are
not sure what it is; but let me just say that we are going to be ap-
plying the standard that I just indicated. But we would like to
work with you to make sure that we are fully addressing your con-
cerns.
Mr. Becerra. One last question, I know we need to run for a
vote, the TRIPs agreement, the trade-related aspects of intellectual
property rights agreement, I know that some countries have asked
to reopen that and I know that we have in the year 2002 an oppor-
tunity to do just that. Are you planning to reopen any type of nego-
tiation on TRIPs before 2002?
Ms. Esserman. At this point we don’t envision reopening the
TRIPs agreement. Our most important objective here is to ensure
that other countries comply with their obligations here. That is
very important to us. We have been working closely with industry,
with our trading partners around the world, not just to wait till
when their commitments come due but to work in advance of that
to ensure that we have the maximum of opportunity for countries
to be meeting their commitments in this important area.
Mr. Becerra. Please be sure to let us know if you are at all
thinking of opening that up before 2002 because that would con-
cern a number of us who don’t see enough progress. And a final
question, if I could ask, with regard to some of the World Intellec-
tual Property Organization, WIPO agreements that were reached
to try to provide protections for intellectual property, I know a
number of countries have not ratified some of those various agree-
ments. Are you going to try to push to see if we can encourage
countries to see if we can ratify those quickly?
Ms. Esserman. Yes, we are very much doing that.
Mr. Becerra. Thank you very much.
42
Chairman Crane. Ms. Esserman, I apologize because we don’t
control the procedure over there on the floor, but this is the second
bells and so the Subcommittee will stand in recess subject to call
of the Chair. I urge colleagues to run over there, vote, and run
right back. We will be right back.
[Recess.]
Chairman Crane. We apologize, Ms. Esserman, for the interrup-
tion. I will now yield to our distinguished colleague from Min-
nesota, Mr. Ramstad.
Mr. Ramstad. Thank you very much, Mr. Chairman, and thank
you. Madam Ambassador, for your testimony and for the good job
you are doing.
Earlier Mr. Levin stressed the need to have fighters for Amer-
ica’s interest at the WTO Round in Seattle. I can assure you Min-
nesota will be well represented with fighters, our delegation will be
headed by our Governor, Governor Jesse Ventura, and he is a fight-
er in every sense of the word. And like our Governor, all Minneso-
tans are concerned that our farmers get a fair break, which means
significant liberalization for the agricultural sector.
I am sure you are familiar with the recent study done by the
Dutch Agriculture Ministry in preparation for the Seattle Ministe-
rial meeting?
Ms. Esserman. I am not familiar with the specifics of that.
Mr. Ramstad. This study concluded that dairy compacts in our
country undermine our position for reduced trade barriers for dairy
products and that if the United States erects barriers like the
Northeast Interstate Dairy Compact within our country, then we
have no standing to negotiate reduction of agriculture trade bar-
riers elsewhere. The Northeast Interstate Compact expires on Sep-
tember 30 of this year and unfortunately there are some in Con-
gress who want it to continue to the detriment of efficient dairy
farmers in our country by passing a bill, H.R. 1402, This would be
a death sentence for our dairy farmers.
I would like to first of all, Mr. Chairman, submit this letter for
the record from Governors Ventura and Tommy Thompson of Wis-
consin opposing, strongly opposing, H.R. 1402.
Chairman Crane. Without objection so ordered.
[The information follows:]
43
State of Minnesota State of Wisconsin
Govermor Jesse Ventura Governor Tommy G. Thompson
July 14. 1999
Chairman PMI Crane
Subcommittee on Trade
Committee of Ways and Means
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Crane:
We are writing on behalf of dairy farmers in the Upper Midwest to ask that the
Ways and Means Subcommittee on Trade consider the bill H.R. 1402 before the August
recess. We are concerned that this bill violates international trade agreements and that its
passage will be detrimental to the United States’ negotiations at the World Trade
Organization (WTO) negotiations in Seattle.
The Dutch Ministry of Agriculture recently released a report (attached) that
analyzed U.S. federal dairy policy, concluding that our federal dairy policy violates the
WTO rules. The European Union plans to bring this up as a negotiating tool during the
trade talks.
We believe that the passage of H.R. 1402, which virtually legislates the present
dairy milk marketing order system, will put the United States at a disadvantage at the
WTO talks.
Mr. Chairman, we believe, as you do, in free and fair trade. We want to ensure
that dairy farmers are able to compete in open markets worldwide. We hope that your
Subcommittee would consider holding hearings on H.R. 1402.
Sincerely,
Tommy Mompson
Governor of Wisconsin
Cc:
Speaker Hastert
Minnesota and Wisconsin Congressional Delegation
44
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Chairman
Gi&Bons & Company
CHARLES P. HEETER.JR.
Associate Parmer, Oovemment Affairs
Andersen Wondvade
PHYLLIS SHEARER JONES
PrnsirtentS CEO
0an mternaconai
FRANK X. KELLY
vice President
Liz Ciairoorna. Inc.
VIRGINIA H. KNAUER
Director
U 3. Office of Consumer Affairs (Ret.)
WILLIAM C. LANE
Washington Direaor of Governmental Affars
CaterpiUarlnc.
LEWIS E. LEIBOWITZ
Hogan 4 Hanson LLP
FRED J. MARTIN, JR.
Senior Vice President,
Bank of Amenca (Pet )
WILLIAM A. MAXWELL
International Trade Policy Manager
Hewlett Packard
R. K. MORRIS
Cireaor, International issues
JANET A. NUZUM
Vice President 4 General Counsel
International Dairy Foods Assoaaton
July 29, 1999
Dear Congressman:
Consumers for World Trade, a national, nonprofit, nonpartisan
organization representing consumers' interests in open markets and
expanded trade, wishes to express its strong concerns over dairy
legislation which may be considered soon on the House floor.
H.R. 1402, sponsored by Representative Roy Blunt (R-MO) and reported
recently by the Committee on Agriculture, would reverse market-okented
reforms to domestic dairy policy, increase consumer costs for milk and
dairy products, and undermine our intemationl trade interests in
expanding global markets. We urge you to oppose this legislation if it
comes to the House floor.
U.S. daily policy is admittedly complex. Even our foreign competitors,
however, have identified the irony embodied in this bill. A recent report
by the Dutch dairy industry suggests that U.S. dairy policy is
domestically focused and moving towards increased support and market
intervention. These moves will make it more difficult, and less important
the Dutch suggest, for additional market-oriented reforms in the
upcoming trade negotiations in the World Trade Organization (WTO).
Tlie Dutch point out that the pending dairy bills moving through
Congress will likely lead to flirther price and supply distortions on world
dairy markets, which may place the United States at risk of violating its
WTO obligations. U.S. commitment to more open agricultural trade is
being called into question.
Unfortunately, many dairy markets around the world are characterized by
highly protectionist regimes of support and trade barriers. That is why the
upcoming WTO negotiations are so critical. Opening up dairy and other
agricultural markets globally and eliminating the distortions that flow
from protectionist agricultural policies are important goals of the
45
upcoming WTO negotiations. These reforms will benefit consumers and U.S. dairy producers alike.
However, legislation to increase federally-mandated milk prices, cross-subsidize manufactured dairy
products, and extend domestic price supports will seriously undermine U.S. credibility in these
negotiations and diminish our ability to achieve our WTO objectives. How, for example, can we hope to
convince our trading partners in the European Union to reform significantly their Common Agricultural
Policy and maintain open markets for agricultural products if we ourselves do not lead the way in
agricultural trade liberalization.
The United States needs to act responsibly and demonstrate a genuine commitment to more open
markets and expanded trade. Increasing protection for dairy farmers in certain regions of the United
States is against the interests of a more profitable national industry, and against the interests of all
consumers of dairy products. Please vote against H.R. 1402.
Doreen L. Brown
President
Consumers for World Trade
Mr. Ramstad. Madam Ambassador, let me just ask you this: You
don’t believe, do you, that it is in our best interest to continue with
this Northeast Compact?
The USDA has already testified in opposition to the legislation
in front of the Agriculture Committee. I think it is a fair question.
It just seems to me if we let it expire we will be on solid footing
going into the agriculture negotiations.
Ms. Esserman. Well, I would of course never agree with our agri-
culture — never disagree with our Agriculture Department.
Mr. Ramstad. You never disagree.
Ms. Esserman. Would not disagree with our Agriculture Depart-
ment. I understand that Secretary Glickman has, if I understand
it correctly, has opposed the market ordering aspect of this par-
ticular package but not the support aspect of it. And from that
standpoint, we have looked at the support aspect of it. By itself it
does not violate international trade obligations.
Mr. Ramstad. So you don’t agree with the Dutch Ministry of Ag-
riculture, the Dutch study that really concluded our Federal dairy
policy violates the WTO rules? That is their bottom line.
Ms. Esserman. As I said, I have not even seen this study and
I would be loathe to disagree — loathe to agree with the conclusion
of a study that I have never seen.
Mr. Ramstad. I will he happy to share that with you as well as
with Members of the Subcommittee.
Thank you for your very candid, straightforward answer that you
share Senator Glickman’s opposition to continuing this compact.
For my remaining minutes, could you just elaborate about how
provisional implementation works and is it realistic?
Ms. Esserman. I do think it is realistic. I think this is a good
way to ensure that we are securing the goals of our agriculture
community and also ensuring that we serve the interests of our in-
dustrial base. First, as I said at the outset, it is critically important
to succeed that we have a broad package at the end of the day, at
46
the conclusion of the round to ensure that all of our interests are
served and that our agriculture community’s interests are served.
The accelerated tariff liberalization initiative includes initiatives
that fully were pursued in the Uruguay round and in fact in the
Uruguay Round Agreements Act there is direction to us to continue
to pursue early liberalization in these areas. So we are going to
continue to pursue results, early results. We believe the way to
meld the interest is they would be achieved on a provisional basis,
on a provisional early basis, and then made permanent at the end
of the round, so that these industries continue to have a stake in
the negotiations until the final day, which is very important to our
agriculture community.
Mr. Ramstad. Thank you. Madam Ambassador.
Thank you, Mr. Chairman.
Chairman Crane. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman, and. Ambassador
Esserman, thank you for your testimony today. I told you in ad-
vance what my question was going to be but let me lead up to it
by saying as a free trader and someone who strongly supports an
effective WTO, I share the ambitious agenda you have for the min-
isterial and for the new round and indeed hope to work with you
to make that possible. It includes improving the WTO as you stated
in your testimony.
You have also said that the first step is to ensure compliance
with existing agreements, and I think that is fine. I would go one
step before that and say we need to ensure compliance with exist-
ing dispute resolutions, the settlements that we have already en-
tered into that are not yet being implemented where we still don’t
have relief for U.S. industry. Again as a free trader and someone
who is very interested in accession of China to the WTO and in the
viability of the WTO system, I am very concerned about the fact
that we are not ensuring just that those agreements that we have
made since the last round are being implemented, but that indeed
the dispute resolutions are being taken seriously. With the beef
and banana cases, taken together, with the Europeans we have
about $300 million in retaliation now against the European Union,
and many on the Hill frankly think we have achieved a victory,
and it is off a lot of people’s radar screens. That concerns me be-
cause in fact we have absolutely no relief in sight for the U.S. in-
dustries affected. In the banana case, as you know, there is a possi-
bility of that but the Europeans have continued to put forward re-
gimes that are even more illegal along the lines of the WTO illegal
regime that was already determined as such by two GATT panels
and WTO. In the beef case, heads of state are going around saying
we will never comply.
So I guess my focus would be to be sure that this system works,
the standard of success is going to be whether U.S. industry re-
ceives the relief that is due them under international trading rules,
and as you and I have talked about in the past and I have talked
to your predecessors about this, I feel strongly that in order for us
to have the free trade caucus here on the Hill prevail on a number
of issues, including WTO accession issues but also on fast track
and other issues, we have to show the current system works.
47
I would ask you today if that is your agency’s standard of success
and, if so, what can we do to increase the likelihood that with that
standard of success measurable relief will indeed be provided to
U.S. companies in these and other cases.
Ms. Esserman. Congressman, well, I share your views about the
problems of compliance, compliance not only with agreements but
compliance with dispute panel rulings. I also share your view that
the ultimate test of success is getting results for our industry. And
to that end, we are deeply disappointed by the European Union’s
behavior in both of these disputes. I might say that they are alone
in how they have responded to dispute settlement panel rulings.
Even Japan has complied with dispute settlement panel rulings. So
while we do believe we need to amend the dispute settlement
mechanism and we are working intensely on it now because the ba-
nana episode certainly showed that we needed to make some im-
provements, the big problem is Europe and not more than the dis-
pute settlement system itself
Let me just talk about bananas and beef and a little bit about
the reform. I do believe that the combined effect of the retaliation
in the two cases is starting to have effect. And by effect, I mean
that the private sector interests, that upon which the retaliation is
imposed, the 100 percent duties, are now beginning to feel the
pinch and they recognize that there are consequences if their gov-
ernment does not comply with panel rulings, and we have gotten
a number of indications that that is so. And that is the point of
having retaliation, so that — you cannot have retaliation, as we all
know, because that does not bring the benefits to the industry, but
to put maximum pressure on the government ultimately to comply,
and that is what our goal is here.
Mr. PORTMAN. Again I would restate in a slightly different way
what I said earlier, which is if these cases cannot be resolved fairly
with our allies, admittedly the Europeans have been the most fla-
grant violators, then it is hard for many of my colleagues on the
Hill to understand how we can ever expect a country like China or
other countries that we like to see accede to the WTO comply with
similar rulings. I would hope that these cases they are precedent
cases certainly for agriculture, and I would argue for the WTO dis-
pute settlement system in general, continue to be a top focus of
USTR.
I commend you for your success in the litigation but now it is a
question of implementation. I encourage you to turn up the heat
and be sure that these two cases are resolved and others that are
outstanding. As you said earlier, the Europeans are one country
that has most commonly been out of compliance with these cases.
It is important to note and get on the record that the U.S. has in-
deed complied every time the United States has been found in vio-
lation of a WTO ruling.
Ms. Esserman. Let me assure you that this remains a top pri-
ority for us because retaliation is not the answer. In addition, we
are also working to reform the dispute settlement mechanism itself
because we do not want a country as Europe did to seek to exploit
ambiguities in the rulings. What we are now seeking is to have a
clarity about the procedure that should be employed if a country
is questioning whether or not another country has truly taken ef-
48
fective compliance measures consistent with the panel ruling. So
here we are setting up very clear procedures and we are also seek-
ing to take time, shorten the — take time out of the early phases of
the dispute settlement process. So we are working at bottom to se-
cure more effective compliance rules.
Mr. PORTMAN. I know I am over my time, I apologize, but the fi-
nality of the rulings is very important. I know we have talked
about the endless loop before. I was going to talk about that with
a later panel, but I know USTR has also focused on that. If we are
going to glue up the WTO we have to have finality in these cases
so countries cannot continue to endlessly elongate the litigation.
Ms. Esserman. Right. Finality is what we are trying to achieve
here.
Chairman Crane. Mr. Weller.
Mr. Weller. Thank you, Mr. Chairman. Good afternoon. Ambas-
sador. Appreciate the opportunity to talk with you. Earlier when I
testified before this Subcommittee I raised the issue of the loss of
domestic film industry jobs and economic impact of the issue of
runaway production, a study done by the Directors Guild and
Screen Actors Guild which was recently released, and you may not
have seen that yet, but they estimate, according to the study, that
we have lost about 125,000 domestic film industry jobs over the
last decade. The problem is accelerating. We have lost 20,000 film
production jobs in the United States last year and if it continues
to escalate at the current trend we could see as many as 35,000,
36,000 jobs lost next year.
So representing the Chicago area and concerned about in other
communities around this country where film production is an im-
portant part of our economy, I believe that the issue of runaway
production particularly, as well as the cultural content issue,
should be on the table at the upcoming Seattle Round. And I guess
what are you familiar — to begin with, let me just ask, are you fa-
miliar with the cultural content issue?
Ms. Esserman. I am familiar to some degree with this issue.
Mr. Weller. Well, do you believe that the Canadian cultural
content rules, are they designed to solely protect Canadian culture
or do you believe that to some extent these rules are more designed
to protect Canadian jobs or actually create additional jobs and at-
tract them from the tlnited States?
Ms. Esserman. Well, Congressman, we certainly understand a
country’s right to take legitimate measures to promote their cul-
ture, but we do have concerns about measures such as some of
these that are really economic protection in disguise. I don’t know
all of the particulars in this area. But as I mentioned to Congress-
man Becerra earlier, we would be pleased to work with you to
make sure we have this fully on the agenda in a way that serves
the interests of this sector.
I know there are a number of factors here that have contributed
to the runaway jobs, including the incentives, also wage rates and
exchange rates, which are a little bit more difficult to address, as
I know you must appreciate. But we want to work with you to
make sure we have a full appreciation and we are most fully
achieving what we can for this sector.
49
Mr. Weller. Ambassador, it appears when the television sta-
tions in any of the networks that serve Canada are required to
have at least 60 percent of their programming be Canadian cul-
tural content, that it makes it very difficult for American-produced
television as well as films to be shown in Canada. At the same time
they turn right around and through some very aggressive financial
incentives are working to attract our jobs.
Let me ask you: Is it your view that the cultural content rules,
that Canada is applying them fairly? Obviously I think we all want
to protect the culture of the individual countries. And personally
representing Chicago area, having Blues Brothers 2000 filmed in
Canada had an impact on our culture because Blues Brothers are
part of our culture in Chicago. But do you believe that the rules
as the Canadian Government is currently administering them, are
they applied fairly and evenly across the board?
Ms. Esserman. Congressman, I am not familiar with all the par-
ticulars here, but we have a number of concerns about the protec-
tive effect of these rules, culture rules in Canada.
Mr. Weller. Are you familiar with the point system that they
use to qualify for tax incentives?
Ms. Esserman. I am not familiar with the specific figures of it,
but I would be delighted to become familiar to make sure we are
fully looking at that issue.
Mr. Weller. I welcome the opportunity to sit down with you rel-
atively soon to discuss this issue. Clearly it is a major economic
issue not only in Chicago but nationally. We have spent a lot of at-
tention over the last 9 to 12 months talking about the loss of the
steel industry jobs. We have lost 10,000 steel industry jobs in the
past year, we have lost twice as many film industry jobs. It is
clearly an issue that must be on the table.
I look forward to working with you and look forward to sitting
down with you shortly. Thank you. Ambassador. Thank you, Mr.
Chairman.
Chairman Crane. Mr. English.
Mr. English. Thank you, Mr. Chairman. Ambassador Esserman,
welcome, and your comments as always are thoughtful and useful.
I wanted to pursue a line of questioning that Mr. Houghton had
opened up where I would welcome your elaboration. And I want to
start by reading a couple of lines from an article that was pub-
lished yesterday in Korea. “Seoul will join forces with Japan, India,
Brazil and the Association of Southeast Asian Nations to revise the
antidumping agreement of the World Trade Organization and thus
eradicate the possibility of abuses by the world’s main trading na-
tions, a foreign affairs trade ministry industry official said yester-
day. The antidumping agreement is one of the hottest issues under
discussion in the process of launching the so-called new round ne-
gotiations.”
Now, given your comment to Mr. Houghton that the administra-
tion would resist reopening the antidumping agreement, may I ask,
given the effort that is being made here by some of those countries
that certainly in the case of steel have clearly been identified as
being involved in dumping on our domestic market, what is the ad-
ministration’s plan to prevent the Seattle Round from resulting in
a weakening of our rules against unfair trade and given the com-
50
mitment of these countries to try to make this one of the focuses
of the Seattle Round? How committed is the administration and
what is the administration’s strategy for heading off this result?
Ms. Esserman. Congressman English, let me assure you that we
are very committed to head this off. I am quite aware of the deter-
mination of Japan and Korea and some of the ASEAN countries.
But what I would like to do is have — I think I do have an oppor-
tunity to meet with you tomorrow. I would like to use that occasion
to go into our strategy, which is quite detailed, but I would share
it with you privately rather than have our trading partners have
a chance to hear that.
Mr. English. I will certainly take that opportunity and I will
take that as a very positive response on your part and I look for-
ward to that meeting.
On a separate issue, obviously we are in the process of a negotia-
tion with China that will eventually lead to the resolution of their
accession into the WTO. But separately, we have had a negotiation
with the government in place on Taiwan. And it seems that Taiwan
is in a more advanced place for being considered as a candidate for
WTO membership. On Taiwanese accession, do you feel it is pos-
sible that the WTO could consider Taiwan for membership without
creating a sovereignty issue with China?
And let me express in my view, Taiwan should be considered sep-
arately from China. And if Taiwan is in a position for WTO mem-
bership, my hope is that they will be considered. Can you comment
on Taiwanese accession in and the administration’s view of this
issue.
Ms. Esserman. It is true that at this moment that the Taiwan
accession is more advanced than the China accession. And we —
there was a working party or meeting in Geneva last week I be-
lieve or last Friday on the Taiwanese accession. Let me simply say
that we are going to continue to work with Taiwan on its accession
and you know we look to the successful accession of both Taiwan
and China.
Mr. English. Outstanding.
Mr. Chairman, that concludes my questioning. Again, Ambas-
sador, I thank you for the opportunity to pursue this line.
There are many of us in Congress who are very concerned that
the Seattle Round may become a focus for an effort to water down
some of the basic protections that we are able to provide under cur-
rent WTO rules for domestic industries that are the target specifi-
cally of unfair trade practices. Mr. Cardin and I have legislation
which we hope the administration will favorably consider over time
to strengthen our existing laws in America to allow remedies to our
domestic companies and workers in some of these situations.
We welcome your examination of that legislation which is WTO
consistent, and I look forward to our dialog.
Ms. Esserman. Thank you.
Chairman Crane. Mr. Watkins.
Mr. Watkins. Thank you, Mr. Chairman. And Ambassador, al-
ways great to see you. You know, we know that free trade depends
upon fair trade. And I think we reflect, we study, we realize we
have got to have or need a WTO to make sure we have fairness,
and we assure compliance.
51
And I look forward to the Seattle round on November 30. I think
we have tremendous opportunities and I am a person who wants
to see those opportunities made available for the next generation
in the 21st century and there is no question our maintaining and
sustaining a strong economic growth depends on our being in the
trade arena. I got a couple questions and I would like to ask you.
Because I think the WTO’s credibility is at stake. I have — I don’t
apologize but I have become obnoxious about the beef deal. I know
I have. I pound the table, I have shouted, I have jumped up and
down and got out of character because I think we have not fulfilled
our commitment to that particular industry. And I think we slight-
ed that situation.
And let me say I am not a negotiator, I guess I could say maybe
I have been a horse trader to a certain extent, but 10 years ago
we realized that the European Union on banning the beef hor-
mones on our beef coming into that country, they held us at bay
for 10 years. Then we go through all the appeals. And then basi-
cally finally said, well, after that period of time, looking through
$900 million possible tariffs, we said there is $205 million penalty,
or $205 million that your shop, USTR said, hey, we are going to
finally come up with European Union, the 1^0. I will put it that
way. The WTO finally said $116 million. That is nearly $90 million
that we sent there. And I didn’t hear no screaming, no position
being discussed about that. That is an 84-percent reduction. That
is a win in anyone’s position on someone else’s part. I think we got
to have stronger teeth.
And this is where I want to go to your point. You stated “Euro-
pean Union’s failure to implement panel results in two cases, how-
ever, has been troubling and we hope to ensure that the future los-
ing parties comply to face penalties in a more timely fashion.”
Ambassador, “we hope to ensure.” What are we doing to put
some teeth in it? “We hope” is feeble. It is wimpish if I can say
that. What are we doing? I think we have to be strong if we are —
if we are going to put some backbone behind the WTO on this stuff.
I have high hopes of Mike Moore from New Zealand. In fact, I am
going to New Zealand during August and we will be meeting some
folks down there on trade. But what are we doing there when you
say “we hope” ?
Ms. Esserman. Well, Congressman, I regret that you said the
word “hope.” we are working with great resolve to try to achieve
results in two ways. First, as I mentioned to Congressman
Portman, to correct, to amend the dispute settlement rules so there
is clarity in dealing with the situation like Europe where a country
is not seeking to comply but seeking to drag its feet. So we are try-
ing to set up rules where there will be a time certain where coun-
tries pay the consequences for failure to implement panel rulings.
So we are changing the rules.
And second, on beef, we share your disappointment in that retal-
iation is not the end that we are seeking for the beef industry.
However, the retaliation, as I mentioned to Congressman Portman,
is now starting to have its effect. There are many, many producers
in Europe who are now feeling the effects of this retaliation, which
is, after all, 100 percent of the value of a product. We impose 100
percent retaliation.
52
These companies are feeling the effect of the retaliation. And now
the government is forced to see the consequences of its failure to
come in compliance. I am not saying that we are there yet, but
we — and we don’t feel that we are there yet, not at all, because
there is no result here. We share your frustration.
Mr. Watkins. Let me if I could, Mr. Chairman, could you provide
us instead of saying — instead of saying hoping, could you provide
us those steps that you are planning on taking and recommending
and also about the — ^you said ensuring timely implementation? Also
what we are going to be doing to try to ensure timely implementa-
tions? Can you provide it for me and also the Subcommittee?
Ms. Esserman. I would be pleased to do that.
Mr. Watkins. I wonder about us saying we are not going to take
up antidumping discussions at the Seattle WTO meeting because
it is an issue in the steel industry, it is an issue in the oil industry,
it is an issue now with Mexico, saying maybe going to put 215-per-
cent tariffs on some agriculture going into Mexico. How can we say,
stand idly by and say we are not going to discuss that or have that
on the agenda there. That is one question. And who is handling the
antidumping in your shop at the USTR in the discussion so I can
discuss some things with them?
Ms. Esserman. I am, and I would be delighted to discuss those
issues with you. We believe that it is very important to the United
States’ interests to have strong and effective antidumping laws.
And the purpose of Japan and Korea and the ASEAN countries is
to weaken those disciplines. I think we have seen in the course of
this steel crisis how incredibly important it is to have strong and
effective rulings against unfair trade. It is the basis upon which we
can move forward boldly to open up our markets.
So that is the basis for the position. I would be pleased to come
and talk to you.
Mr. Watkins. I would welcome that. I say this in high hopes
also, for the future for the WTO, try and make sure that we have
free and fair trade around. I try to confront it in a positive way,
because I want it to work. I want us to make sure we assure our
industries across — whether it is bananas or beef, the other aspects
of it, make sure that we know that we are making the fairness a
major issue by making sure they follow what we have agreed to.
So, again, I will say in a very positive way, I hope and I know
that we have got to be there. I want to, I am pushing that. I want
a 21st century globally competitive economy. Build a trading center
in Oklahoma.
I want to make sure that we are out in front leading because our
future if we are going to be an economic power has to be out there
in trade.
Thank you for the job you are doing.
Ms. Esserman. Thank you.
Chairman Crane. Let me thank you. Madam Ambassador. We
appreciate your patience. We apologize for the disruption during
your appearance today.
With that, we will excuse you and welcome our next panel.
[Questions submitted by Chairman Crane and Ambassador
Barshefsky’s responses follow:]
53
Questions Submitted for the record By Congressman Philip M. Crane for
Ambassador Charlene Barshefsky
Question 1: As you know, I am concerned about using the WTO to deal with labor
issues that are not related to trade and for which there is no national or inter-
national consensus. Please detail the Administration’s plan to handle labor issues
at the Seattle Ministerial.
Answer 1:
The implementing legislation for the Uruguay round requires the President to
seek the establishment of a WTO Working Party on trade and labor standards. We
sought to accomplish this at the Singapore Ministerial meeting but were not suc-
cessful. At Seattle we again will attempt to obtain the establishment of a Working
Group on Trade and Labor. The purpose of this Group is to have a serious examina-
tion — through discussion and analysis — of a number of trade related labor topics.
We believe that the International Labor Organization, the World Bank, the Inter-
national Monetary Fund, and the United Nations Conference on Trade and Develop-
ment should collaborate on this work. In this regard, we also feel that the ILO
should be given observer status at the ILO. The Working Group would prepare a
report for submission to the next WTO Ministerial.
We recognize that ILO is the preeminent international labor organization. It has
energetic, new leadership, and it has negotiated significant agreements in the past
year involving core labor standards and exploitative child labor. However, there are
important issues involving the relationship between trade and labor that require
consideration at the international level, and the ILO is not equipped to undertake
this review. On the other hand, the WTO, working with other international institu-
tions, can make a valuable contribution to the understanding of these issues. Our
WTO proposal outlines six trade related labor issues; these are all issues that can
benefit from the WTO’s comparative advantage as the international community at-
tempts to understand them better. We have proposed a constructive and supportive
role for the WTO in the labor area.
Question 2: During the August 5th Trade Subcommittee hearing, I indicated
THAT I WAS concerned THAT U.S. BUSINESSES WERE BEING HANDICAPPED BY NA-
TIONAL LAWS AND PROCEDURES THAT RESTRICT THEIR ABILITY TO GET THE RIGHT
PEOPLE TO THE RIGHT PLACE AT THE RIGHT TIME. I WAS PLEASED TO SEE MENTION
OF “MOVEMENT OF NATURAL PERSONS” AS AN AREA RIPE FOR NEGOTIATIONS IN YOUR
RECENTLY TABLED SERVICES PAPER. I WOULD APPRECIATE AN EXPLANATION OF YOUR
PLANS TO PROCEED ON THIS IMPORTANT ISSUE IN THE UPCOMING ROUND OF NEGO-
TIATIONS WHICH WILL BE LAUNCHED IN SEATTLE.
Answer 2:
To maintain their competitiveness in foreign markets, U.S. services companies
often require the ability to bring along their top personnel to manage operations and
perform specialized tasks overseas. Some U.S. companies also perform short-term
consultancy or other work requiring brief visits. The WTO General Agreement on
Trade in Services (GATS) recognizes this by creating a category for temporary entry
of “natural persons” as service suppliers. Further, there is work underway in the
GATS to promote greater transparency in government regulation, an area that U.S.
companies have identified as a particular problem with respect to such temporary
entry
in foreign countries.
We are working with U.S. companies to help ensure that in the next services ne-
gotiations, our companies will have greater freedom to move these top-level, special-
ized personnel as needs arise.
Question 3: At the hearing a representative of the International Insurance
Council discussed pro-competitive regulatory principles (copy attached)
THAT his group HAS SUGGESTED. I AM INTERESTED WHETHER YOU VIEW THESE
PRINCIPLES AS A POSSIBLE BASIS FOR DEVELOPING UNITED STATES NEGOTIATING OB-
JECTIVES FOR THIS IMPORTANT INDUSTRY. I AM ALSO INTERESTED IN YOUR VIEWS
ON THESE PRINCIPLES AND THE EXTENT TO WHICH YOU INTEND TO PURSUE THEM
IN THE NEXT ROUND OF SERVICES NEGOTIATIONS.
54
Answer 3:
The U.S. Trade Representative’s Office already has been giving close attention to
these principles promoted by several representatives of the U.S. insurance commu-
nity and has drawn from them in formulating U.S. objectives for the “GATS 2000”
negotiations. The U.S. negotiating proposal includes major issues identified by the
U.S. financial services industry, such as improving market access and national
treatment; promoting transparency and fairness of domestic regulatory regimes,
with appropriate regard for the prudential clause; and review of whether existing
definitions include all important commercial activities. Like many in industry, the
U.S. believes that these issues have to be examined as a package to guarantee open
and meaningful market access for financial services providers. We intend to pursue
these issues vigorously and through the use of all possible negotiating approaches
in the upcoming round of services negotiations.
That is Mr. John Pepper, Chairman of Procter & Gamble in Cin-
cinnati and Chairman also of the President’s Advisory Committee
on Trade Policy and Negotiations; Ernest Micek, Chairman,
Cargill, Inc., Minneapolis, on behalf of the Emergency Committee
for American Trade; Dean O’Hare, President and chief executive of-
ficer, Chubb Corp. and Chairman of the Coalition of Service Indus-
tries; Dean Kleckner, President of the American Farm Bureau Fed-
eration; John Dillon, chairman of the board and chief executive offi-
cer, International Paper Co.; Mark Van Putten, President and chief
executive officer. National Wildlife Federation.
And let me apologize to all of you gentlemen for the kind of cha-
otic day we are experiencing. As you sit down here, we are in the
midst of our tax bill on the floor, which is kind of a hot topic, and
that accounts for many of our Members being tied up over there
during the debate. But the other thing is I realized as some of you
have tight time constraints, and so for everyone’s benefit, if you are
on a tight time constraint or you have flights to catch, at any time,
excuse yourself, and we understand your situation, too.
And now I would like to yield to my distinguished colleague, Mr.
Portman, first, to welcome Mr. Pepper, his constituent.
Mr. Portman. Thank you, Mr. Chairman. I will be brief just to
welcome John Pepper, who has been a voice of reason on free trade,
and has not only done this, Mr. Chairman, in terms of policy over
the years, being one of the leading advocates of explaining the ben-
efits of free trade and did it through business practices, but also
in the last 30 years deeply involved in our community back home.
He has a passion for youth and helping them, as shown through
his work in education and antidrug efforts — he is on the board of
the Coalition for a Drug-Free Cincinnati with me — and his work on
racial cooperation and dialog. And I welcome him this morning —
this afternoon, now, and look forward to his testimony.
Chairman Crane. And next I would like to yield to our distin-
guished colleague from Minneapolis, Mr. Ramstad, to welcome his
constituent Mr. Micek.
Mr. Ramstad. Thank you, Mr. Chairman. I will be brief. It is a
pleasure to extend a special welcome to my good friend Ernie
Micek, chairman of Cargill and also chairman of the Emergency
Committee for American Trade, ECAT.
I want to thank you again, Ernie, for appearing once again before
the Subcommittee, and for your important leadership in helping us
knock down tariff and nontariff barriers to USA exports. Nobody
55
has been a better corporate citizen than Cargill, not only in Min-
nesota, but worldwide, and nobody has been a more impressive,
more committed chief executive officer than you have. So thank you
for all that you are doing and for your leadership, and welcome
again to the Subcommittee.
Chairman Crane. And I would just like to ask one question, be-
cause I heard a rumor, Mr. Kleckner. I know you are from Park
Ridge. Is it true that Hillary Clinton used to babysit you when you
were a toddler?
Mr. Kleckner. I don’t know, Mr. Chairman. She did go to school
in Park Ridge, and as I look out my office window, I look down the
street to where she was born and raised just two blocks away.
Chairman Crane. John Wayne Gacy another two blocks. They
are both from Henry Hyde’s district. That is why I raised the ques-
tion, because it is right next door to me.
Mr. Levin. I have nobody to introduce.
Chairman Crane. Now, gentlemen, if you will proceed in the
order that I introduced you on the schedule here.
Mr. Pepper.
STATEMENT OF JOHN E. PEPPER, CHAIRMAN, PROCTER &
GAMBLE COMPANY, CINCINNATI, OHIO, AND CHAIRMAN,
PRESIDENT’S ADVISORY COMMITTEE ON TRADE POLICY
AND NEGOTIATIONS
Mr. Pepper. Thank you, Mr. Chairman. And thank you, Rob.
As the Chairman indicated, I appear here today as the Chairman
of the President’s Advisory Committee on Trade Policy and Nego-
tiations, ACTPN as we call it. I accepted this role a year ago be-
cause I feel very strongly that forging a consensus and taking ac-
tion to take greater advantage of trade liberalization is critical to
this country’s future, is critical to the growth of the economy and
the growth of jobs. We all know the importance of the WTO Min-
isterial that is coming up in terms of furthering trade liberaliza-
tion.
My convictions on this for years have rested on two simple
things: One, we have got far lower tariffs and lower barriers than
anybody else, and if we can get other people down to our area, it
is going to help us greatly, and if we don’t, we are going to suffer,
as we are suffering right now, for example, as Chile’s 11 percent
duty is being reduced for Mexico and Canada and not for us; as we
see an increasing amount of trade between Brazil and Argentina
that we are not taking part of because of MERCOSUR.
And the other fundamental here, of course, is that the over-
whelming part of this world’s population lies outside of this coun-
try, and we need to ship more products to it, and we can if we have
a level playingfield.
As we went into ACTPN this year, and recognizing the WTO, we
decided we would focus 100 percent of our time on advising
Charlene Barshefsky and Sue Esserman on that agenda. We will
comment today on three of those aspects: Market access, particu-
larly agriculture; the new economy, particularly e-commerce; and
the role of trade and labor. You will hear from Dean Kleckner and
Dean O’Hare on two of those. I will be brief.
56
On market access, as 60 percent of the world trade will soon be
covered by regional free trade and customs union agreements,
ACTPN supports a bold initiative to bring those efforts into the
WTO. We also support a broad market access package. Tariff and
nontariff barriers in all industrials should be dramatically reduced
and export subsidies eliminated.
There is no more important element in the next WTO Round
then Agriculture. Dean will talk to that. I would just highlight here
the particular focus we have brought to the issue of biotechnology.
The USTR’s goal is to ensure that access to new agricultural tech-
nologies, specifically GMOs, genetically modified organisms, are not
restricted by protectionism and unfounded fear. And this rep-
resents a huge risk to U.S. agriculture, indeed to the world’s popu-
lations.
While there is, I can tell you, general agreement among the
ACTPN members not to reopen the current sanitary and
phytosanitary standards, and we think that is very important.
There is a working group that has been charged with defining the
issues in SPS that present problems to some of our members and
determine how these problems could be addressed. Dean will talk
about that in a minute.
The ACTPN Services Working Croup has urged USTR to adopt
broad liberalization and market access in a range of sectors, includ-
ing audiovisual services, telecommunications, travel, tourism and
others. We have recommended to the USTR that they adopt a neg-
ative list schedule as the most effective negotiating strategy. Dean
O’Hare, CEO of the Chubb Corp. and a member of ACTPN, will
comment on this in a moment.
We spent a lot of time in the last 9 months on the subject of the
new economy, and particularly e-commerce. We have concluded
that especially since e-commerce is in its infancy, governments
must resist the urge to regulate or impose tariffs or nontariff bar-
riers. Clearly avoidance of harm should be the guidance here,
avoidance of mischief. We should allow technology to follow market
forces as it matures.
The evaluation of e-commerce in the last year has led our mem-
bers to recognize that e-commerce is only one element of an incred-
ibly fundamental change in the global economy, that of IT, informa-
tion technology. Internet usage is doubling every 100 days. Com-
puters’ power is doubling every 18 months. By 2006, one-half of the
U.S. work force will be employed in industries that are either
major producers or users of IT products. IT growth is already
stretching existing trade agreements, and it is going to raise many
new unforeseen issues.
Make no mistake, this is an area where the United States is
leading. IT as a percentage of gross domestic product is 5.3 percent
in this country compared to 2.9 percent in Europe. Eortunately,
Lew Gerstner of IBM has agreed to chair an ACTPN task force on
IT which will deal with this rapidly changing technology and make
appropriate recommendations for policy not just for the WTO, but
on a continuing basis.
Charlene Barshefsky has asked that an IT task force consider
presenting an education forum for the trade ministers on IT issues
in Seattle. We think that is a good idea.
57
A priority without consensus right now in ACTPN is the con-
troversial role of labor and trade. In Procter & Gamble we refer to
controversial issues like this as “mooses on the table.” They are
issues that people are reluctant to deal with head on, that they
tend to talk past each other on and where there are legitimate
competing agendas.
ACTPN members John Sweeney and Tom Donahue of the Cham-
ber of Commerce have agreed to lead the examination of conflicts
that have often arisen between labor leadership and the advocates
of trade liberalization. They will be presenting their conclusions at
our September 28 ACTPN meeting. We are hopeful that there will
be common ground that we can find on some issues such as the
elimination of forced labor, exploitive child labor, respect for ILO
labor standards and the importance of transparency in the resolu-
tion agreements.
Finally, I would simply note that there has been heavy emphasis
in the ACTPN on what has been stressed here by you gentlemen
today, the importance of assuring compliance and accountability
with agreements and with resolution rulings. If the WTO is not de-
livering on what it has agreed, we have a failed system. And I
would assure you that in our discussions, the energy we have seen
around this from Sue Esserman and Charlene Barshefsky has been
intense.
In conclusion, let me just express my conviction here that each
one of us must take ownership of this if we are to be successful in
Seattle and take advantage of the enormous opportunities that this
country has through a successful round. P&G along with 140 orga-
nizations have formed the U.S. Alliance for Trade Expansion, a co-
alition to bring together a lot of different efforts to promote the
benefits of a rule-based trading system for all Americans.
As Members of the Trade Subcommittee, I would respectfully
suggest that each of you has a vital role to play. Your education
of other Members as well as your constituents about the impor-
tance of the ministerial and free trade certainly must go alongside
what we in industry do to tell our members about its importance.
I cannot imagine a higher stakes issue than what we are talking
about here or a higher stakes event than the WTO Ministerial.
Thank you very much.
Chairman Crane. Thank you, Mr. Pepper.
[The prepared statement follows:]
Statement of John E. Pepper, Chairman, Procter & Gamble Company, Cin-
cinnati, Ohio, and Chairman, President’s Advisory Committee on Trade
Policy and Negotiations
Mr. Chairman and distinguished members of the Trade Subcommittee, I am John
E. Pepper, Chairman of The Procter & Gamble Company. I appear today as Chair-
man of the President’s Advisory Committee on Trade Policy and Negotiations
(ACTPN).
This is an organization that was created by the Trade Act of 1974. It consists of
approximately 45 members who are appointed by the President and represent busi-
ness, labor, industry, agriculture, services, retailers, environment and consumer in-
terests. The ACTPN is charged with advising the President and USTR on trade
matters.
Let me begin by saying that I accepted the role as Chairman of ACTPN because
I feel passionately that unless the U.S. sets an example by forging a consensus on
many of the controversial issues related to trade policy, this country will jeopardize
its role as a global leader. While the views of our ACTPN members on specific com-
ponents of the negotiating objectives for the WTO Ministerial are diverse, we are
58
all in agreement that the U.S. has a unique opportunity to provide leadership in
bringing together the 133 representatives of the WTO member countries. Success
will bring enormous benefits to the world economy. Failure would be a blow to our
common prosperity. We must not let that happen.
As host of the WTO Ministerial, the U.S. plays a key role in establishing the
agenda for trade liberalization over the next decade. Why is this important? Over
one-third of U.S. economic growth since 1992 has resulted from trade. Americans
by nature believe in playing by the rules. If we can bring those rules to the rest
of the world and establish a level playing field, U.S. companies will be able to send
our products to other countries and make our strong economy even stronger. If not,
American firms and workers will be placed at a competitive disadvantage. ACTPN
members are concerned that our trading partners are concluding preferential trade
agreements without us. Already, Chile’s 11% tariff is being reduced unilaterally for
both Mexico and Canada, but not for the U.S. MERCOSUR countries are progres-
sively eliminating tariff rates among member countries. Virtually all trade between
Brazil and Argentina now enjoys a duty-free status. With 95% of the world’s popu-
lation living outside the U.S., the vast majority of growth potential for American in-
dustry — growth that provides American jobs — comes not from the U.S., but the rest
of the world.
To support our U.S. negotiators in the challenges confronting them at Seattle,
Ambassador Barshefsky has engaged the ACTPN in three key areas — market ac-
cess, the new economy, and the role of trade and labor. I’d like to briefly comment
on our policy recommendations in these areas.
Market Access
As 60% of world trade will soon be covered by regional free trade and customs
union agreements, ACTPN supports a bold initiative to bring these efforts into the
WTO.
ACTPN also supports a broad market access package, such as that negotiated in
the Uruguay Round. To be specific, tariff and non-tariff barriers in all industrial
sectors should be dramatically reduced, and export subsidies eliminated. Obviously,
we’ll continue to battle our European friends over their $60 billion in agriculture
trade-distorting subsidies, but like Vince Lombardi, I believe “winning becomes a
habit.”
• Agriculture
U.S. farmers lead the world in productivity and efficiency, sustaining our health
and quality of life at home and aiding a hungry world abroad. As agriculture is cer-
tain to be a key element of the next WTO Round, the ACTPN has focused our en-
ergy on agricultural products of modern biotechnology and the U.S. Trade Agenda.
USTR’s goal is to insure that access to new agricultural technologies is not re-
stricted by protectionism and fear. While there was general agreement among
ACTPN members not to reopen the current sanitary and phyto sanitary (SPS)
standards, a working group has been charged with defining the issues in SPS that
present problems to some of our members and determine how these problems should
be addressed. Dean Kleckner, President of the American Farm Bureau Federation
and a long-time member of ACTPN, will elaborate more on this in his testimony.
• Services
In 1998 U.S. services exports were $260.3 billion, while imports were $180.8 bil-
lion, producing a trade in services surplus of $79.4 billion. Services comprise nearly
30% of U.S. exports. Additionally, in 1998 U.S. service exports supported about four
million U.S. jobs — jobs both in services and manufacturing sectors.
The ACTPN Services Working Group urged USTR to adopt broad liberalization
and market access in a range of sectors including, but not limited to, audio visual
services, telecommunications, travel, tourism and others. The Working Group also
recommended to USTR that they adopt a negative list schedule as the most effective
negotiating strategy and one which would speed market access. Dean O’Hare, CEO
of Chubb Corporation and a member of ACTPN, will comment in more detail on the
services agenda.
The New Economy
Since 1994, the ACTPN has produced five reports on the WTO. This morning, I
want to review the most recent report — on the subject of e-commerce — and share
with you the context of ongoing ACTPN discussions on the “new economy” which
is so critical to America’s future.
59
• E-Commerce
At our June 10, 1999 meeting, ACTPN finalized a report led by Hewlett-Packard’s
Lew Platt that dealt with a variety of electronic commerce issues.
ACTPN opposes the classification of electronic commerce as a good or service.
While it still believes that substantive regulation of electronic commerce should be
left to the member countries and other international organizations, it advocates the
adoption of WTO rules on transparency notification and review of domestic regula-
tion. Our key message is, e-commerce is in its infancy and governments need to re-
sist the urge to regulate. We should allow technology to follow market forces as it
matures.
• Information Technology
ACTPN’s evaluation of e-commerce led our members to recognize that e-commerce
is only one element of a fundamental change in the global economy — that of infor-
mation technology (IT).
Lew Gerstner of IBM reported to ACTPN members that computing power has
been doubling every eighteen months for the past 30 years, with a parallel geo-
metric decline in prices. Internet usage doubles every 100 days. By 2006 almost half
of the U.S. work force will be employed by industries that are either major pro-
ducers or users of IT products and services.
IT’s explosive growth is already stretching existing trade agreements, and is cer-
tain to raise new, unforeseen issues. And make no mistake — the U.S. is leading the
creation of this new economy. IT spending as a percentage of GDP in the U.S. in
1998 was 5.3%. By comparison, Europe was 2.9% and Japan was 3.5%, which is
where the U.S. was in 1990. Our trade policy must reflect this rapidly growing glob-
al marketplace.
An ACTPN Task Force was established to make recommendations to USTR on
how to ensure we remain in a leadership position to deal with this rapidly changing
technology. I’m pleased to report that Lew Gerstner has agreed to chair this impor-
tant effort.
Charlene Barshefsky has also requested that the IT Task Force consider pre-
senting educational forums for trade ministers on IT issues at Seattle. I personally
think this is a terrific idea and a meaningful role for ACTPN to play at the Ministe-
rial.
Trade & Labor
A priority for which there is no consensus in ACTPN, but one that must be ad-
dressed if we are to make progress in trade policy, is the controversial role of labor
and trade. In Procter & Gamble, we refer to controversial issues as “moose on
table.” These are issues that no one wants to deal with head on as there are always
competing agendas. Unfortunately, unless leadership focuses on the moose, these
issues never get resolved. ACTPN members, John Sweeney of the AFL-CIO and
Tom Donahue of the COC have assumed leadership for our group in clarifying trade
and labor issues and in establishing a framework for resolving these concerns
through U.S. trade policy. Their goal is to present issues upon which there is and
is not agreement at our September 28, 1999, ACTPN Meeting. I remain hopeful that
there will be some areas of mutual agreement and progress. Global growth can and
should be accompanied by safer workplaces, elimination of forced labor and
exploitive child labor and respect for core labor standards. The WTO, in particular,
can work in more coordination with the International Labor Organization on some
of these issues. While developing countries are expected to argue against inclusion
of any work on trade and labor in the WTO, our U.S. negotiators have a unique
opportunity to deliver results in this important area.
Conclusion
In conclusion, let me say that each of us here today must assume ownership if
the U.S. is to be successful in Seattle. My Company, Procter & Gamble, along with
the Coalition of Service Industries, the American Farm Bureau Federation, and over
140 other organizations, have led the formation of the U.S. Alliance for Trade Ex-
pansion. The mission of this coalition is to promote the benefits of a rules-based
trading system for all Americans and support U.S. Leadership at the Seattle Min-
isterial.
As Members of the Trade Subcommittee, each of you also has a vital role to play
at the WTO. Your education of other Members of Congress and your own constitu-
ents about the importance of the Ministerial and what it means to the future of this
great country is paramount. Congress as a whole must build on their recent trade
60
successes including passage of the Africa Growth and Opportunity Act, CBI, China
NTR and Vietnam NTR. Bipartisan support for GSP renewal and permanent NTR
for China (if an agreement is reached) should follow. We must support our U.S. ne-
gotiators. They will be working around the clock to build a better future for you,
me and for our children.
Tom Friedman writes in his book. The Lexus and the Olive Tree, that globalization
is everything and its opposite. We are a nation that is not afraid to go to the moon,
but also still loves to come home for Little League. We are a nation that invented
both cyberspace and the backyard barbecue. We can never take this for granted. For
globalization to be sustainable, America must be at its best — today, tomorrow, all
the time. That is our challenge and our responsibility.
Thank you.
Chairman Crane. Mr. Micek.
STATEMENT OF ERNEST S. MICEK, CHAIRMAN, CARGILL, IN-
CORPORATED, MINNEAPOLIS, MINNESOTA, AND CHAIRMAN,
THE EMERGENCY COMMITTEE FOR AMERICAN TRADE
Mr. Micek. Thank you, Mr. Chairman. I am testifying today be-
fore the Trade Subcommittee as Chairman of the Emergency Com-
mittee for American Trade, which is comprised of the heads of
major American companies with global operations who represent
all principal sectors of the U.S. economy.
ECAT believes that in order to have a successful Seattle WTO
Ministerial, the focus of the meeting must be kept on the launch
of a new comprehensive round of trade negotiations. These negotia-
tions should enhance market access for the industrial, agricultural
and service sectors, and ensure that WTO rules accomodate the de-
velopment of new technologies key to the U.S. economic growth in
the 21st century.
While building a positive trade-expanding agenda for the min-
isterial and a new round is critical, we will not be successful with
that agenda here at home unless we also build a consensus in sup-
port of trade expansion among American workers and their fami-
lies. This means that we must demonstrate how trade liberaliza-
tion improves the lives of Americans and helps all economies meet
basic human needs.
ECAT believes that one way to increase trade’s contribution to
human well-being is to make eliminating barriers to trade in food
a central negotiating objective in the agenda coming from the Se-
attle Ministerial.
Toward this end, ECAT is launching a Food Chain Coalition. The
coalition will promote the reduction or elimination of major bar-
riers to trade at all levels of the food production and distribution
chain. Putting food prominently among negotiating priorities will
increase food security, accelerate economic development, and pro-
mote a sustainable environment. This new paradigm also can help
to achieve the critical consensus necessary to support open trade
policies.
Before outlining our specific Food Chain Coalition proposal, I will
briefly discuss ECAT’s overall recommendations for the Seattle
WTO Ministerial agenda and new WTO Round.
The United States must take the lead in crafting an agenda for
the WTO Ministerial and for a new round that is focused on trade
liberalization. The agenda must avoid globally divisive issues such
61
as nontrade-related labor or environmental matters or competition
policy on which there is not yet a broad-based consensus within the
WTO.
The United States needs to recognize the ways in which trade
liberalization contributes to resolving some of these problems and
to building consensus for cooperation. For example, the elimination
of barriers to food trade that ECAT is proposing also yields envi-
ronmental benefits by encouraging agricultural practices that pro-
mote production in advantaged areas while lessening demands on
environmentally fragile lands.
In order to provide a positive foundation for continuing liberal-
ization in a WTO new round, ECAT believes that the United States
should urge that WTO members adopt a standstill commitment on
trade-restrictive measures at the ministerial. The ministerial agen-
da also should include a renewed effort to broaden WTO member-
ship to include those emerging economies that are not yet subject
to WTO rules, particularly China.
In order to ensure that the new WTO Round negotiations pro-
mote trade expansion, ECAT recommends that the formulation of
the agenda be guided by the following general principles:
One, the focus of the negotiations should be trade liberalization.
A new round agenda should be as comprehensive as possible. All
WTO members should be required to adhere to new round agree-
ments once they are finalized. A new round should be completed
expeditiously according to an agreed-on timetable.
The United States should seek maximum liberalization through
improved market access with as few exceptions as possible. New
round negotiations should not weaken existing WTO agreements or
create opportunities for the imposition of new trade restrictive
measures. A new round should also promote full implementation
and compliance with existing WTO agreements.
Trade liberalization objectives that address basic human needs
should be a focus of the WTO negotiations. ECAT believes that
these principles, which are set out in greater detail in our written
statement, can effectively guide the formulation of U.S. objectives
for a new round.
ECAT has formed a Food Chain Coalition to promote the elimi-
nation of major barriers to food trade affecting the agricultural,
manufacturing, and service sectors within the WTO. There are sev-
eral reasons ECAT has chosen to take this unusual step. First,
ECAT has learned from its trade education focus group research
that supporters of global trade expansion must demonstrate the
importance of trade to the daily lives of American workers and
their families to enjoy their support for liberalization. One of the
most compelling ways that we can emphasize the human dimen-
sion of global trade liberalization is by eliminating barriers to food
trade.
Second, the Food Trade Coalition can build on the momentum
within APEC for an open food system by extending its trade liber-
alization objectives to the WTO.
Third, the Food Chain Coalition captures the growing interest in
agrifood trade liberalization. That interest extends well beyond
farmers to people who supply them with seed, chemicals, fertilizer
equipment and capital. It also applies to those who handle, trans-
62
port, process, finance, and market food products. By using the
elimination of barriers to trade and investment at all levels of the
food chain as an organizing principle, the Food Chain Coalition
seeks to create cross-sectoral alliances in support of common nego-
tiating priorities. These priorities include eliminating export sub-
sidies, zeroing out tariffs and eliminating investment restrictions.
Focusing on the shared interests in economic development and
liberalization enables businesses and governments to build a new
set of alliances and common interests. This will increase the poten-
tial for success in new round negotiations. In terms of the new
WTO new round, the coalition urges the United States to seek zero-
for-zero tariff harmonization on agrifood products wherever pos-
sible and on related industrial products such as engines and engine
systems.
In conclusion, ECAT, looks forward to continuing to work with
you, Mr. Chairman, and other Trade Subcommittee Members on
negotiating objectives for the new round, and in particular, our
Food Chain Coalition project. I appreciate the opportunity to
present our views. Thank you very much.
[The prepared statement follows:]
Statement of Ernest S. Micek, Chairman, Cargill, Ineorporated, Min-
neapolis, Minnesota, and Chairman, Emergency Committee for American
Trade
Introduction
I am Ernie Micek, Chairman of Cargill, Incorporated. Cargill is a privately held
agribusiness company founded over 130 years ago in Iowa. Today the company is
headquartered in Minneapolis, Minnesota, and our 80,000 employees are engaged
in marketing, processing, and distributing agricultural, food, financial, and indus-
trial commodities throughout the world.
I am testifying before the Trade Subcommittee today as Chairman of the Emer-
gency Committee for American Trade, comprised of the heads of major American
companies with global operations who represent all principal sectors of the U.S.
economy. The annual sales of ECAT companies total over one trillion dollars, and
the companies employ approximately four million men and women.
ECAT believes that in order to have a successful Seattle WTO ministerial the
focus of the meeting must be kept on trade expansion through the launching of a
new, comprehensive round of trade negotiations. The ministerial should lay out an
agenda for the new round that enhances market access for traditional industrial and
agricultural products, while accommodating WTO rules to the development of new
technologies that will be key to U.S. economic growth in the twenty-first century,
such as biotechnology and electronic or e-commerce. The agenda also should
strengthen the rules of the global trading system.
While building a positive, trade-expanding agenda for the ministerial and the new
round are critical, we will not be successful with that agenda here at home unless
we also maintain our efforts to build a consensus in support of trade expansion
among American workers and their families. This means that we must make the
case that trade liberalization improves the lives of American workers and their fam-
ilies and helps all economies meet basic human needs.
ECAT believes that one way to increase trade’s contribution to human well-being
is to make eliminating barriers to trade in food a central negotiating objective in
the agenda coming forth from the Seattle ministerial. Toward this end, ECAT is
launching a “Food Chain Coalition” that will promote the reduction or elimination
of major barriers to trade at all levels of the food production and distribution chain.
Putting food prominently among negotiating priorities will increase food security,
accelerate economic development, and promote a sustainable environment. This new
paradigm also can help to achieve the critical consensus necessary to support open
trade policies.
The ECAT food chain concept builds on the idea of an open food system that has
gained support within the Asia Pacific Economic Council (APEC) and extends it to
the WTO. A study by the U.S. Department of Agriculture has concluded that two-
63
thirds of the welfare gains from trade liberalization within APEC comes from the
agri-food sector alone. Given the many global distortions to agri-food trade, there
are similar benefits to come from an “open food” initiative within the WTO.
Before outlining our specific Food Chain Coalition proposal, I will present ECAT’s
recommendations for the Seattle WTO ministerial agenda and new WTO round.
Launching a New Trade Round at the Seattle WTO Ministerial Seattle WTO
Ministerial Objectives
As we approach the millennium, we must ensure that U.S. trade and investment
remain the powerful engines of economic growth that have helped to produce the
longest period of peacetime economic expansion in American history and the lowest
unemployment rate in 30 years. With 96 percent of the world’s customers outside
of the United States, the future growth of the American economy depends on ex-
panding world markets. Just as ECAT member companies recognize that they must
be global firms to thrive, the United States must maintain its preeminence as a
global economy to continue to prosper into the next century.
To accomplish this, the United States must take the lead in crafting an agenda
for the Seattle WTO ministerial and for a new round that is focused on trade liber-
alization. That agenda should avoid globally divisive issues, such as non-trade-re-
lated labor or environment matters or competition policy, on which there is not yet
a broad-based consensus within the WTO. That is not to say that these issues are
unimportant. It is merely to recognize that, if contentious issues dominate the min-
isterial, confidence in the global trading system and U.S. leadership will be under-
mined.
The United States needs to recognize and articulate the ways in which trade lib-
eralization contributes to resolving some of these problems and to building con-
sensus for cooperation. For example, the elimination of trade-distorting agricultural
subsidies and the reduction of tariffs on environmental goods and services reduce
harm to the environment, while speeding the spread of technologies that enable
countries to be efficient and to be environmental stewards. The elimination of bar-
riers to food trade that ECAT is proposing also yields environmental benefits by en-
couraging agricultural practices that promote production in advantaged areas while
lessening demands on environmentally fragile lands. On labor issues, the United
States is pursuing an appropriate course in increasing its support for the ILO and
focusing its efforts to achieve a forum on global labor issues within that organiza-
tion.
ECAT also has some other specific recommendations for the ministerial. The
United States could help in maintaining an open and transparent economy by urg-
ing that WTO members adopt a standstill commitment on trade-restrictive meas-
ures. Such a commitment would safeguard the liberalization achieved under the
Uruguay Round and subsequent sectoral negotiations while preventing backsliding.
It also would provide a positive foundation for continuing liberalization in the con-
text of a new round. As the largest and most open economy in the world, the United
States is in the best position to call for such a commitment. Indeed, the WTO Secre-
tariat, in a recent highly laudatory report on U.S. trade policies, noted the critical
role that the United States plays in serving as a positive role model for other WTO
member countries by maintaining open markets. It also cited the key role of the
United States in helping to restore global economic stability in the wake of the
Asian financial crisis and the breakdown of the Russian economy.
To be successful, the ministerial agenda also should include a renewed effort to
broaden WTO membership to include those emerging economies that are not yet
subject to WTO rules. China, the largest emerging economy in the world, must be
brought into the multilateral trading system. Its admission to the WTO on the basis
of a commercially-acceptable protocol of accession should be given top priority. The
high degree of financial instability in Asia and the slowdown in the global economy
make it more critical than ever that China become subject to WTO rules and a par-
ticipant in liberalization initiatives.
Reaching an agreement on sectoral market-access initiatives, such as the negotia-
tions on the eight sectors covered under the Accelerated Tariff Liberalization (ATL)
negotiations, at the time of the ministerial would help to make it a success and
would provide momentum for even broader liberalization negotiations in a new
round. ECAT particularly supports efforts under the ATL initiative to eliminate tar-
iffs on chemicals, toys, medical equipment and scientific instruments, and forestry
products. Similarly, progress at the ministerial in negotiations to remove non-tariff
barriers in the information technology sector is important and would also promote
a successful meeting.
64
U.S. business has a significant role to play in ensuring the success of the ministe-
rial by encouraging the adoption of a positive agenda and making the case for the
contributions of the WTO in continuing trade liberalization. ECAT supports the
work of the Alliance for U.S. Trade, an ad hoc coalition of U.S. business associations
and companies that is coordinating business support for ministerial activities, and
similar efforts by other groups.
A WTO ministerial that produces a trade-expanding agenda backed by consensus
will send a strong signal to global markets about the strength and vitality of the
open trading system. A ministerial that endorses an expansion of the open trading
system will encourage emerging economies to stay the course on trade liberalization.
Success in advancing a trade-liberalizing agenda at the Seattle meeting will help
to reinforce U.S. domestic support for the WTO by demonstrating that the WTO con-
tinues to advance American interests in promoting greater market access for U.S.
goods, services, and agriculture. A clearly articulated trade liberalizing agenda also
will build support for renewal of trade-negotiating authority.
The WTO New Round Agenda
In order to ensure that the new WTO round negotiations promote trade expan-
sion, ECAT recommends that the formulation of the agenda be guided by the fol-
lowing principles:
• The focus of the negotiations should be trade liberalization. Progress on non-
trade related labor and environmental issues should be pursued in other appro-
priate international fora.
• A new round agenda should be as comprehensive as possible in order to gen-
erate the greatest interest among WTO member countries and to maximize the op-
portunity for liberalization. A round should encompass the built-in agenda of agri-
culture and services, as well as industrial tariffs, customs facilitation, transparency
in government procurement, and other new areas. However, the agenda should not
open areas on which there is little consensus or likelihood of progress.
• In keeping with the legal framework of the multilateral WTO agreements, all
WTO members should be required to adhere to new round agreements once they are
finalized.
• A new round should be completed expeditiously according to an agreed time-
table. Consideration should be given to allowing for provisional implementation of
agreements concluded in advance of the agreed deadline but with leverage retained
to ensure that progress is made across all areas, including difficult ones.
• The United States should seek meiximum liberalization in market-access nego-
tiations with bound reductions in tariff and non-tariff barriers to agricultural and
industrial products and in the services sector, with as few exceptions as possible.
The negotiations on industrial products should cover as many sectors as possible.
• New round negotiations should not weaken existing WTO agreements or create
opportunities for the imposition of new trade-restrictive measures or discriminatory
treatment, particularly with respect to new areas such as biotechnology and e-com-
merce.
• A new round should promote full implementation of and compliance with exist-
ing WTO agreements. WTO members should consider the provision of additional
technical assistance to developing countries to promote this goal.
• The United States should align U.S. negotiating objectives with promoting high-
er U.S. and global living standards. Trade liberalization objectives that address
basic human needs should be a focus of the WTO negotiations.
ECAT believes that these principles can effectively guide the formulation of U.S.
objectives for a new round and can help maximize the benefits of the negotiations
to the U.S. agricultural, manufacturing, and services sectors. ECAT’s views on the
major areas that should be included in a new round are provided below.
Agriculture
The agriculture negotiations should aim to secure substantial, progressive reduc-
tions in support and protection, including deep cuts in bound tariff rates and the
elimination of export subsidies. Negotiations should reduce average tariff bindings
over six years by 50 percent from current levels. Tariff peaks should be reduced to
levels that will not prohibit imports. Negotiations should clarify that tariff-rate
quotas are transitional measures and provide for their phase-out. Sectoral zero-for-
zero tariff agreements should also be encouraged.
The agriculture negotiations should seek further reductions in trade-distorting do-
mestic supports, both by reducing support levels and by shifting to less trade-dis-
torting support mechanisms. The United States also should seek to eliminate the
65
monopoly control of state-trading entities (STEs) and strengthen WTO rules to en-
sure that agricultural trade is conducted on commercial terms.
As outlined in greater detail in the section of our testimony describing our Food
Chain Coalition proposal, ECAT believes that the Seattle ministerial declaration
should build on the initiative being developed within APEC and establish a global
“open food system.” To this end, the ministerial declaration should include language
establishing a “WTO Working Party on the Creation of an Open Food System.”
General Agreement on Trade in Services (GATS)
The United States should pursue new negotiations to liberalize trade in services,
particularly financial services, as part of a new round. The negotiations should seek
to broaden and deepen the liberalization commitments under the GATS. Further lib-
eralization of services trade will enhance global growth, assist developing countries
in obtaining the necessary infrastructure to sustain development, and help restore
investor confidence in global markets.
The services negotiations should also include a review of regulatory regimes in
order to promote the creation of transparent, impartial, and pro-competitive regu-
latory regimes in local markets. The creation of such regimes is essential to make
the Gats national treatment and market-access commitments meaningful.
In seeking expanded liberalization commitments, the United States should aim to
limit reservations to the greatest degree possible. In particular, it should seek com-
mitments to ensure national treatment and the right of establishment, eliminate re-
strictions on cross-border transactions, promote pro-competitive regulatory reform,
and remove obstacles to the free movement of business personnel.
Market-Access Negotiations
A new round should include market-access negotiations to remove tariff and non-
tariff barriers in a wide range of industrial sectors. The tariff negotiations on indus-
trial products should include new zero-for-zero tariff initiatives on small engines
and other industrial products. The negotiations should also seek the elimination of
tariff peaks and so-called “nuisance” tariffs of five percent or less.
The market-access negotiations should include efforts to achieve tariff reductions
in the eight ATL sectors to the extent such reductions have not been finalized by
the time of the ministerial. As was recently endorsed by the APEC Ministers, the
market-access negotiations should cover the six additional sectors identified in
APEC for further liberalization, particularly food products.
Textile and apparel tariffs, which remain very high relative to other industrial
products, also should be included in market-access negotiations, with the goal of
seeking further reductions before the termination of textile and apparel quotas in
2005. Finally, the negotiations should encompass efforts to broaden membership in
the Chemical Tariff Harmonization Agreement (CTHA), with the understanding
that no further reductions in chemical tariffs should be considered until all major
chemical-producing nations are fully committed to the CTHA.
Trade Facilitation
ECAT strongly supports the inclusion of business-facilitation issues on the min-
isterial agenda. The United States should seek a WTO agreement on trade facilita-
tion that would encompass the adoption of a binding WTO agreement based on the
rules contained in the International Convention on the Simplification and Harmoni-
zation of Customs Procedures (Kyoto Convention), a work program on trade facilita-
tion, and a commitment to simplify rules of origin. The United States should encour-
age the WTO to focus its trade-facilitation efforts on customs procedures and advo-
cate the establishment of a WTO working group on the harmonization and sim-
plification of customs procedures. The United States also should support the sim-
plification and harmonization of non-preferential rules of origin, so that they no
longer create unnecessary trade impediments.
TRIPs Agreement
The United States should ensure that the full implementation of the TRIPs agree-
ment remains a priority under the WTO built-in agenda. It should resist any effort
by developing countries to extend the year 2000 deadline for their implementation
of the agreement and support the provision of technical assistance to developing
countries to facilitate implementation. It also should oppose the extension of the
moratorium on the application of WTO dispute settlement to intellectual property
cases in which there is no direct violation of the TRIPs agreement.
The United States should oppose efforts to expand Article 27.3 of the TRIPs
agreement, which provides that WTO members may deny the patentability of cer-
tain plants and animals. Under the WTO built-in agenda, this provision is to be re-
66
viewed four years after the date of entry into force of the WTO agreement. The re-
view was originally intended to provide the opportunity to eliminate or narrow the
exclusion. Some WTO members are now advocating that the review be used as the
occasion to broaden the exception based on concerns about the increasing use of bio-
technology in agriculture and other areas. While the United States may not now be
able to succeed in eliminating the exception, it should nonetheless continue to op-
pose any expansion of the exclusion.
ECAT also believes that strict enforcement of the TRIPs agreement should remain
a priority, particularly in the areas of piracy of computer software, music CDs, and
violations of the trademarks of U.S. -branded products such as apparel.
Government Procurement
ECAT supports U.S. efforts to bring more countries into the WTO Procurement
Agreement, to broaden its coverage, and to negotiate an agreement on transparency
in procurement. The United States should seek to conclude an agreement on trans-
parency by the time of the ministerial. It should include requirements regarding the
transparency of procurement laws and regulations, adequate notice of bidding op-
portunities, use of objective criteria in preparing bid specifications and in evaluating
bids, adequate dispute settlement, and WTO notification of preference levels.
The transparency provisions of the Government Procurement Agreement should
be harmonized with the text of a new transparency agreement.
Sanitary and Phytosanitary Standards (SPS) Agreement
The Uruguay Round produced a strong agreement on sanitary and ph 3 dosanitary
standards that requires such standards be based on sound science. This agreement
should be rigorously enforced and should not be reopened in the course of new round
negotiations. The WTO rules should continue to require that governments base reg-
ulations on the best scientific information available and not impose an unattainable
“zero-risk” standard. The United States should oppose any effort to allow SPS
standards to be imposed on any basis other than the current sound science require-
ment, as it would substantially weaken the agreement and create the opportunity
for WTO members to use health and safety regulations to create new trade barriers.
Dispute Settlement
While the WTO dispute settlement process has overall been a strong enforcement
mechanism for WTO rules and market-access commitments, the process can be
strengthened. For example, procedural reforms in the areas of expediting the time-
table for the dispute settlement panel process and implementation of panel and ap-
pellate body reports should be considered.
E-Commerce
E-commerce is an increasingly important venue for international trade throughout
all sectors of the economy. It is imperative that WTO rules address trade barriers
and other trade-related aspects of e-commerce. ECAT believes that a top priority for
the Seattle ministerial should be to make the current standstill regarding tariffs on
electronic transmissions permanent.
ECAT’s Food Chain Coalition
Objectives
ECAT has formed a Food Chain Coalition to promote the elimination of major bar-
riers to food trade affecting the agricultural, manufacturing, and services sectors
within the WTO. The Coalition has three primary objectives: 1) providing a frame-
work for focusing on a key area in which trade liberalization meets basic human
needs; 2) extending the trade liberalization component of the APEC Food System
concept into the WTO; and 3) creating greater leverage to pursue improved market
access and other goals in a new round by facilitating a cross alliance of interests
organized around barriers to food production and distribution. There are several
reasons ECAT has chosen to take this unusual step.
First, ECAT has learned from its TradeWorks trade education focus group re-
search that supporters of global trade expansion must demonstrate the importance
of trade to the daily lives of American workers and their families to enjoy their sup-
port for liberalization. This theme is echoed in the Administration’s call for putting
a “human face” on trade. One of the most compelling ways that we can emphasize
the human dimension of global trade liberalization is by eliminating barriers to food
trade. This will make food supplies more secure, stabilize prices in world markets,
and improve access to needed foodstuffs.
67
Second, the Food Chain Coalition can build on the momentum within APEC for
an open food system by extending its trade-liberalization objectives to the WTO. The
Information Technology Agreement and the current Accelerated Tariff Liberalization
negotiations provide ample precedent for the incorporation of APEC initiatives into
the WTO system.
Third, the Food Chain Coalition expresses the broad interest in agri-food trade
liberalization. That interest extends well beyond farmers to the people who supply
them with seeds, chemicals, fertilizer, equipment, and capital and to those who han-
dle, transport, process, finance, and market food products. In using the elimination
of barriers to trade and investment at all levels of the food chain as an organizing
principle, the Food Chain Coalition seeks to create cross-sectoral alliances in sup-
port of common negotiating priorities, such as eliminating export subsidies, zeroing
out tariffs, and eliminating investment restrictions. The Food Chain Coalition also
enables business to express its shared stake in open markets. People must be well
and reliably fed before they can become regular customers for other goods and serv-
ices. Focusing on the shared interests in economic development and liberalization
enables businesses and governments to build a new set of alliances and common in-
terests that will increase the potential for success in new round negotiations.
The Coalition covers a broad spectrum of issues — ranging from traditional agricul-
tural tariff, quota, and, export subsidy matters to the intellectual property, regu-
latory, labeling, and import-restriction questions raised by a new generation of bio-
technology products. It covers agri-food products themselves, as well as equipment,
machinery, financial services, and other inputs that go into a modern food system.
By reaching outside the traditional core of companies and groups involved in agri-
cultural trade issues to equipment, chemical, pharmaceutical, apparel, financial, and
other industries that are increasingly affected by food issues, the Coalition will gar-
ner broader domestic and international support for its priority negotiating objec-
tives. The Food Chain Coalition also will focus attention on issues that directly af-
fect the welfare and health of hundreds of millions of people now joining the global
economy, thereby putting a “human face” on trade.
Priorities for the WTO Ministerial
The 1999 WTO ministerial provides an historic opportunity for the United States
to shape the world trade agenda into the next century and to lay the foundation
in particular for global liberalization of food trade. To that end, the Coalition sup-
ports the inclusion of language in the ministerial declaration establishing a WTO
“Working Party on the Creation of an Open Food System.”
The Coalition would like to see the working party examine not only traditional
liberalization initiatives, but also other issues, such as achieving food security
through a principle of non-discrimination, that are integral to meeting the challenge
of providing the world’s growing population affordable, abundant, nutritious, and
environmentally sustainable food supplies. Among the novel issues to be addressed
should be providing technical assistance to developing countries on rural develop-
ment strategies, sanitary and phytosanitary standards issues, and the use of trade
and financial risk tools to enhance food security.
Priorities for the WTO New Round
The Coalition sees this broader, more integrated strategy as critical to achieving
its fundamental goal in this historically sensitive area — more open markets for the
products and services involved in the production and distribution of food. In par-
ticular, the Coalition urges the United States to seek “zero-for-zero” tariff harmoni-
zation on agri-food products wherever possible. The Coalition also supports the initi-
ation of “zero-for-zero” tariff negotiations on engines and engine systems and the ex-
pansion of the existing “zero-for-zero” tariff agreements for construction and agricul-
tural equipment to include a greater number of WTO member countries. The Coali-
tion also believes that the elimination of agricultural export subsidies should be a
priority in a new round.
Conclusion
The Trade Subcommittee’s hearing today is a vitally important part of the overall
effort that must be made by the Administration, the Congress, and the U.S. busi-
ness community to work together to forge a trade-expanding agenda for the Seattle
WTO ministerial and a new WTO round. ECAT looks forward to continuing to work
with you, Mr. Chairman, and other Trade Subcommittee members on negotiating
objectives for the new round and in particular on our Food Chain Coalition project.
I appreciate the opportunity to present ECAT’s views and would be happy to an-
swer any questions subcommittee members may have.
68
Chairman Crane. Thank you, Mr. Micek.
And next Mr. O’Hare.
STATEMENT OF DEAN R. O’HARE, CHAIRMAN AND CHIEF EX-
ECUTIVE OFFICER, CHUBB CORPORATION, WARREN, NEW
JERSEY, AND CHAIRMAN, COALITION OF SERVICE INDUS-
TRIES
Mr. O’Hare. Mr. Chairman and Members of the Subcommittee,
I am Dean O’Hare, chairman and CEO of the Chubb Corp. It is my
pleasure to appear today in my capacity as chairman of the Coali-
tion of Service Industries.
We believe that the ability of the U.S. services economy to gen-
erate new jobs and GDP depends on an aggressive trade policy that
opens new markets for our businesses. In my own company, we
could not maintain our U.S. employment base or survive long term
if we were not expanding abroad.
The U.S. nonlife-insurance market is mature, and its growth rate
is low. We now generate almost 25 percent of our premium income
from outside the United States, and I expect that figure to rise sub-
stantially.
Our experience supports the point that you cannot sell services
to people unless you are in the local market. Our firm’s foreign op-
erations do not cost U.S. jobs. They help to maintain our employ-
ment base in the United States. There is no question that U.S.
service industries are among the most competitive in the world.
Nonetheless, we have formidable foreign corporate rivals wanting
to clean our clock. This is why we need an aggressive U.S. trade
policy strongly led by both the administration and Congress, and
equally strongly supported by the business community. That policy
should be clearly focused on trade expansion through the WTO
across a broad range of service sectors.
It also means that we must pursue tax policies that promote our
competitiveness, such as the McCrery-Neal active financing bill.
In the coming negotiations, the services sector wants free, open,
contestable, competitive markets for its products. These conditions
can be obtained by getting our trade partners to commit to, first,
ensure the right of U.S. companies to establish operations in for-
eign markets and to wholly own them.
Second, ensure that U.S. companies receive national treatment
so that they have the same rights as domestic companies.
Third, promote procompetitive regulatory reform focused on ap-
propriate and consistent rules as well as transparency and impar-
tiality of regulatory administration.
Fourth, remove barriers to greater cross-border trade.
And, finally, remove obstacles to the free movement of key
businesspersonnel and business information.
CSI, along with a number of other organizations, has submitted
more detailed objectives to the USTR, and I ask with your permis-
sion, Mr. Chairman, that our submission be included in the record.
We, and our many associated industries, will continue to work
closely with our negotiators in defining precise negotiating goals.
69
Most importantly, CSI is organizing the first World Services Con-
gress in Atlanta, November 1 through 3, to provide strong support
for the Services 2000 negotiations. We believe that in order to com-
plete the new round of negotiations by 2003, the content of the
round must be manageable. We prefer a negotiation focused on the
core items of service, agriculture, and industrial products.
With the possibility that early agreements could be reached in
one or more service sectors, we would like the flexibility to put
these into force so as not to lose the economic advantages they
would offer.
Specific goals for the service sector include, first, extending the
coverage of GATS commitments; second, exploring alternative inno-
vative negotiating techniques to speed up services sector negotia-
tions; third, pursuing procompetitive regulatory reform principles;
and fourth, creating an open environment for the development of
electronic commerce.
In short, Mr. Chairman, we have a very full plate of issues press-
ing for resolution in the new round. To achieve them, we believe
the round must be kept short and that its content be manageable
and achievable within a 3-year timeframe.
Markets move too fast to give us the luxury of a decade-long ne-
gotiation. We need greater market advice as soon as it can be nego-
tiated.
Thank you for the opportunity to express these views.
Chairman Crane. Thank you, Mr. O’Hare.
[The prepared statement and attachment follow:]
Statement of Dean O’Hare, Chairman and Chief Exeeutive Officer, Chuhb
Corporation, Warren, New Jersey, and Chairman, Coalition of Service In-
dustries
It is a pleasure to appear today to present the views of the Coalition of Service
Industries (CSI) on US preparations for the World Trade Organization (WTO) Min-
isterial Meeting in Seattle, specific objectives for the negotiations, and the antici-
pated impact of a successful new round of WTO negotiations on jobs, wages, eco-
nomic opportunity, and the future competitiveness of US service providers.
CSI was established in 1982 to create greater public awareness of the major role
services industries play in our national economy; promote the expansion of business
opportunities abroad for US service companies; advocate an increased focus on liber-
alization of trade in services in international trade negotiations; and encourage US
leadership in obtaining a fair and competitive global marketplace.
CSI members include an array of US service industries including the financial,
telecommunications, professional, travel, transportation and air cargo, information
and information technology sectors. Included in the broader coalition of sectors with
which we work are energy services, advertising, entertainment, retail distribution,
and education.
CSI has been active in multilateral trade negotiations since before the Uruguay
Round and has played an aggressive advocacy role in writing the General Agree-
ment on Trade in Services and obtaining successful WTO negotiations in tele-
communications and financial services.
Today I would like to address (1) the critical importance of services and services
trade liberalization to the US trade balance, jobs, innovation and competitiveness,
(2) the WTO “Services 2000” negotiations as an exceptional opportunity for US serv-
ices firms to expand their operations abroad, and (3) some recommendations for
shaping the coming round in a way that will produce the greatest benefit for all key
sectors of the US economy.
Importance of Services and Services Trade to the US Economy
Because US trade policy has in the past been dominated by concerns about trade
in goods, it is always useful to remind policymakers about the key role services play
now and will play in the information-based global economy.
70
In overall terms, the US service sector comprised 77.2 percent of US GDP, and
78.8 percent of private sector.
US Private-Sector Domestic Product, by Sector, 1997
□ Services
■ Mining &
Agriculture
□ Manufacturing!
The Services sector consists of dlstrtoution, education, financial, Intellectual, property-related, teieoommunioations,
travsi, and a broad range of business, professional, and technical services. ‘
Source: US Department of Commerce, Bureau of Economic Analysis
In 1998, the US created 2.9 million net new jobs, all in the service sector, only
slightly fewer than the 3.2 million service sector jobs created in 1997.
U.S. Private-Sector Empioyment, by Sector, 1997
Total f jll-time erquivalent employees = 95.4 million
Souxe: US Department of Commerce, Bureau of Economic Analysis
□ Services
■ Mining and
Agriculture
□ Manufacturing
The US is the world’s largest exporter and importer of services. In 1998, US serv-
ices exports were $260.3 billion, while imports were $180.8 billion, producing a
trade in services surplus of $79.4 billion. Services comprise nearly 30 percent of US
exports. The US recorded a services surplus of $6.9 billion in May of this year, ex-
porting $23.0 billion while importing $16.1 billion.
US service industries are among the most competitive in the world. Our competi-
tive advantage is immeasurably strengthened by the US ability to enrich our service
products with the latest information technologies. US services companies are tech-
nology leaders whose expertise and innovation have contributed to US productivity
growth across a broad range of sectors. Engagement in diverse foreign markets pro-
vides new opportunities to develop innovative services products and new tech-
nologies.
It is also important to remember that services are an integral component of trade
in agricultural and manufactured products. It is up to the distribution sector to get
goods from the seller to the buyer, up to the consumer credit sector to provide fi-
nancing for the purchase of new goods, and up to the insurance sector to provide
coverage for plants that manufacture everything from shoes to airplanes. These re-
lationships make services important to the international competitiveness of many
sectors of the US economy.
We are entering the “Third Wave” information-based economy of the 21st Century
as the world’s strongest competitor. This does not, however, mean that we do not
have formidable rivals. In insurance, banking, telecommunications, transportation
and many other fields there are strong foreign companies aching to “clean our
71
clock.” And, although the ready availability of information and the rapid growth of
new technologies enhances the competitive position of our own companies, it also
readily empowers our competitors from around the globe.
This is why we need an aggressive US trade policy strongly led by both the Ad-
ministration and Congress, and equally strongly supported by the business commu-
nity.
We need a trade policy clearly focussed on trade expansion, which means using
the WTO and the next round to obtain meaningful liberalization. This means too,
that we must pursue domestic teix and regulatory policies that promote the competi-
tiveness of our companies so that they do not enter the international arena ring ear-
ring a competitive burden of our own making.
I would also like to point out that while U.S. trade policy has concentrated on
opening world markets to U.S. companies, our teix policy has not always moved in
the same direction. U.S. international tax laws are complex, cumbersome, and can
stifle the competitiveness of U.S. companies doing business overseas. Because of
this, international teix reform is a critical element of an effective U.S. trade policy.
As trade policy moves into the 21 Century, it seems our international tax policy
still reflects the business environment of the 1960’s. That is why we are encouraged
by the recent language on teix deferral in the Financial Freedom Act and its Demo-
cratic substitute — this is an important first step in rationalizing our US inter-
national tax rules. CSI has championed strongly the McCrery-Neal permanent ac-
tive financing bill and the provisions in H.R.2018, the International Tax Simplifica-
tion for American Competitiveness Act of 1999 that provide an exception to subpart
F for financial services active business foreign earnings. CSI would like to thank
Chairman Archer, Congressmen Rangel, McCrery, Neal, Houghton, Levin and other
members of the committee who are helping to secure an extension of deferral for
America’s financial services industry; this extension will foster a more equitable and
competitive environment for US business in the international marketplace.
A word about jobs — US jobs. Services companies have mainly grown abroad by es-
tablishing operations in foreign markets (in GATS parlance this is Mode 3 or “com-
mercial presence”). This has been necessary because in most service sectors you can
only sell and deliver services locally. Foreign operations do not cost jobs, in faet, they
support thousands and thousands of new US jobs that wouldn’t exist otherwise.
In my own company, for example, we could not maintain our US employment base
or survive long-term, if we were not expanding abroad. The US non-life insurance
market is mature and its growth rate is low. We now generate almost 25% of our
premium income from outside the United States, and I expect that figure to rise
substantially in the future. But, our engagement abroad not only helps our busi-
ness — it also serves as a bridge for many of our customers to export from the US
or invest abroad.
Here are a few examples illustrating the stake of US service industries in ex-
panded global markets.
• Travel and tourism contributed over $25 billion to the services trade surplus in
1997. This is the largest sectoral contribution to the overall services surplus. In ad-
dition, travel and tourism are estimated to support over seven million direct jobs
and generate roughly $71 billion in tax revenues for federal, state and local govern-
ments.
• Business, professional and technical services is a largely unrecognized power-
house in American trade. In 1997, we exported more than $21 billion in these serv-
ices and we had a $16 billion trade surplus. These data do not include the earnings
from foreign investments and foreign affiliates, which are very substantial. Trade
in business, professional and technical services — such as accounting, legal, engineer-
ing, architectural and consulting services — is especially important because it fre-
quently paves the way for trade and investment in other service and manufacturing
sectors.
• Telecommunications services are an integral component of operations of all
businesses, and are essential in promoting domestic and global growth. Tele-
communications services provide the necessary infrastructure for the development
and continued expansion of the information society and electronic commerce. An es-
timated $726 billion in revenue was generated in 1997, and projections for the next
five years indicate that traded telecommunications services will increase at about
20 percent annually for outbound calls from the US to foreign markets.
• The information technology industry is also dependent on trade and trade ex-
pansion. The WTO estimates that over the next five years, sales over the Internet
will double each year.
• The US asset management industry is the largest in the world. It is estimated
that by 2002, 51% of total asset management revenue of $160 billion will come from
72
abroad, not the US. Today, US-domiciled investment managers manage 14% of the
total of non-US retirement plan assets and 5% of non-US mutual fund assets.
• US law firms, when billing foreign clients, produce services exports. Overall US
legal services exports approach $1.0 billion.
• Foreign students coming to American schools, net after scholarship and local as-
sistance, spent $8.3 billion in the US, which is a US services export. We have a sur-
plus in trade in education services of $7.0 billion.
• Although few doctors imagine themselves as US exporters, medical services ren-
dered in the US to foreign citizens produced an export surplus of $0.5 billion.
• Air cargo transport accounts for well over a third of the value of the world trade
in merchandise. However, restrictions on market access (including cabotage), owner-
ship and control, the right of establishment, capacity, frequencies, intermodal oper-
ations in connection with air services, wet leasing, customs, groundhandling, the en-
vironment in particular local airport access times, all limit the ability of cargo car-
riers to plan their operations purely on the basis of commercial and operational con-
siderations. A WTO framework could provide cargo carriers with clear rules ad-
dressing these problems and resulting in enhanced delivery options to the benefit
of businesses, shippers and consumers worldwide.
• Energy services have received little attention in trade negotiations to date. But
drastic changes in the international and domestic business climate for this indus-
try — which in the US accounts for 1.4 million jobs and about 7% of US GDP — have
shown the need for global trading rules, which can provide new, common under-
standings on such key matters as monopoly power, anti-competitive practices and
discrimination against new market entrants, including of course US companies.
Thus the energy services industry looks to the coming round as a critically impor-
tant opportunity to map out a blueprint for market access and free competition in
energy services.
The challenges facing many services sectors underscore the need for strong,
united leadership as we enter the new round. It also means we must structure this
round to make sure it is a success.
WTO “Services 2000” — the Opportunity We’ve Been Waiting For
The services sector has been working toward the Services 2000 negotiations for
20 years. First came the effort to convince governments that services — like goods —
could be part of a trade negotiation. CSI itself was founded on the conviction that
services firms needed a place in the multilateral trading system, and our founding
members worked hard on behalf of the entire sector to ensure that services were
included in the Uruguay Round.
In the coming negotiations, services will, for the first time, take a front seat in
the negotiations as part of the required agenda. Virtually all of the services sectors
can be subject to negotiation in this round. With 135 member governments now par-
ticipating in its rules-based system, and with more accessions pending, the WTO
and its mandated “Services 2000” negotiations gives the US services industry an un-
precedented opportunity to secure meaningful services trade liberalization from our
trading partners.
“Services 2000”: Goals for US Industry
While previous negotiations have produced important liberalizations for service
industries, all industries in the service sector face uneven implementation of past
commitments and continued foreign impediments to open markets.
What the services sector wants is free, open, contestable, competitive markets for
its products. These conditions can be obtained by getting our trading partners to
commit to:
• Ensure the right of US companies to establish operations in foreign markets,
including the right to wholly own these investments;
• Ensure that US companies get “national treatment,” so that foreign investors
have the same rights as domestic companies in a given market;
• Promote pro-competitive regulatory reform focused on adequacy of appropriate
and consistent rules as well as transparency and impartiality of regulatory adminis-
tration;
• Remove barriers to greater cross-border trade; and
• Remove obstacles to the free movement of people and business information.
CSI, along with a number of other organizations has submitted to the US Trade
Representative more detailed objectives for removing trade barriers. I ask that these
recommendations, covering 8 sectors, be included in the record of this hearing.
These will soon be updated to include additional sections on air cargo and energy
services.
73
We believe the coming negotiation should be completed by January 1, 2003. In
terms of trade negotiations, this is short. In terms of the realities of the market-
place, it is a long time for companies that are seeking to expand their business oper-
ations abroad.
To make the most of the exceptional opportunity offered by Services 2000 it is es-
sential that the content of the broader round be manageable so that there is a rea-
sonable chance of completing the round by 2003. This means a negotiation focussed
on the core built-in items, like services and agriculture, plus industrial products.
Other elements, on which there is no broadly shared consensus among the WTO
contracting parties, like an overarching agreement on international investment and
competition policy, should not be attempted in this short round. Resolving these
issues in the long run may well be important and useful, but they will require a
different negotiating framework.
There has been a good deal of comment about the concept of the “single under-
taking” and early harvests or early agreements. On the possibly slim chance that
an agreement could be quickly reached in a given sector, we believe that agreement
should be allowed to come into force before 2003. It would be unfair to require such
an agreement be held up until the completion of the entire round; this would simply
deny the companies in question and their workers the benefits of the new business
opportunities the agreement would create.
Extending the Coverage of GATS Commitments
The most telling criticism of the GATS is the lack of commitments to liberalize.
The new negotiations must secure commitment to national treatment, market ac-
cess, and cross border services in as many sectors as possible. Current exceptions
are too broad, and must be honed so only the most sensitive issues are excluded.
The need to improve commitments to open trade in cross border services (mode
one) and consumption abroad (mode two) is even more important if electronic com-
merce is to achieve its full development. Electronic commerce as a technology for
the supply of services cannot begin to reach its potential without significant new
market-opening commitments in virtually all industry sectors. The ability to provide
services across borders is a necessary prerequisite of the robust development of elec-
tronic commerce. If the cross border supply of services is not enabled by commit-
ments in modes one and two, electronic commerce will be constrained to narrow na-
tional markets.
Innovative Negotiating Techniques
We strongly encourage the effort to speed up negotiations in the service sector by
finding alternatives to the inefficient, “request/offer” method of negotiations that has
been used to date.
One of these would be to adopt “horizontal” agreements that would apply to all
sectors. For example, why not ask that our trading partners commit, across the
board, to allow foreign companies to establish business operations freely, without
special license and to permit them to be majority owned? Exceptions to this general
rule would be allowed, but in attempting the general rule we would be setting a
high benchmark that would take us a long way to a successful negotiation, that
could be completed by the 2003 deadline.
Regulatory Reform
Regulations are easily used to frustrate and nullify hard won market access and
national treatment commitments. Regulatory reform that is “pro-competitive” should
be a major focus of the new negotiations. For example, attention needs to be given
to instances where incumbent producers have dominant positions because of out-
dated restrictions on market entrance, product innovation, and pricing flexibility.
CSI is intent on pursuing pro-competitive regulatory reform in sectors where it
makes sense, such as in insurance and perhaps other financial services sectors. This
will require WTO members to make adjustments in their regulatory regimes. These
changes should create a transparent framework of rules that will permit markets
to operate as freely as possible while providing necessary protections, such as ensur-
ing the safety and soundness of financial institution.
Creating an Open Environment for the Development of Electronic
Commerce
International trade in virtually all services sectors, particularly cross-border
trade, will be conducted to an increasing extent by electronic means. Electronic com-
74
merce and the Internet are a new technology to facilitate trade, particularly from
business-to-business. Our goal should be to preserve the free-est and most open ap-
plications of these technologies to the enhancement of all forms of trade.
We believe that the cross-border supply of services by electronic means is covered
by existing GATS commitments. Countries’ commitments apply to transactions
whether by digital, or traditional, forms of communication.
We believe that at the Seattle Ministerial Meeting of the WTO, Governments
should:
• Make permanent the moratorium on Customs Duties on Electronic Trans-
missions;
• Reaffirm that existing WTO disciplines and commitments apply to electronic
commerce;
• Agree to refrain from enacting measures that would impede electronic com-
merce; and
• Agree to assess whether national measures affecting electronic commerce are
pro-competitive, and eliminate regulations that impede it.
Conclusion
The coming negotiations are an important milestone. They offer the opportunity
to move considerably beyond the status quo to make progress in opening up trade
in all service industry sectors. As an important step toward “Services 2000,” CSI
is organizing the first World Services Congress in Atlanta on November 1-3 of this
year to provide strong support for the negotiations. It is important that the 2000
negotiations not be hindered by the effort to negotiate issues that are too conten-
tious and would make the round unmanageable. Finally, if the round is to succeed,
it must have the full support of the Administration and the Congress.
Coalition of Service Industries
Response To
Federal Register Notice of August 19, 1998 [FR Doc. 98-22279]
Solicitation of Public Comment Regarding U.S. Preparations for the World Trade
Organization’s Ministerial Meeting, Fourth Quarter 1999
Introduction
The Coalition of Service Industries, in coordination with the Air Courier Con-
ference of America, the Information Technology Association of America, the Inter-
national Communications Association, and the United States Council for Inter-
national Business is pleased to submit our recommendations to the United States
Trade Representative (USTR) pursuant to the Federal Register Notice of August 19,
1998: Solicitation of Public Comment Regarding U.S. Preparations for the World
Trade Organization’s Ministerial Meeting, Fourth Quarter 1999. We appreciate the
opportunity to provide these comments and look forward to continuing to consult
with the USTR and all involved government agencies as we work toward launching
and a successful conclusion of the negotiations.
Organizations which assumed primary responsibility for the initial drafting of
specific portions of this submission are as follows:
I. General Issues — Coalition of Service Industries
II. Distribution — National Retail Federation
III. Express Delivery — Air Courier Conference of America
IV. Financial Services — Coalition of Service Industries
V. Health Care — U.S. Council for International Business
VI. Information Technology — Information Technology Association of America
VII. Professional and Business-Related Services — Coalition of Service Industries
VIII. Telecommunications — International Communications Association
IX. Travel and Tourism — Coalition of Service Industries
Other associations that have been involved in the process of reviewing and com-
menting on this submission include the Air Transportation Association of America,
the American Hotel and Motel Association, The Council of Insurance Agents and
Brokers, the American Bar Association, the American Consulting Engineers Council,
the American Institute of Architects, the American Institute of Certified Public Ac-
countants, the American Insurance Association, the Consumer Bankers Association,
the Investment Company Institute, the American Council on Life Insurance, the Na-
tional Society for Professional Engineers, and the Securities Industry Association.
75
I. General Issues
A. Importance of the Services 2000 Round
Multilateral trade negotiations in services are complex and have had a short his-
tory. The global trading community is only at the beginning of a process of removing
complex barriers to free trade in services through negotiation.
The Services 2000 Round is, therefore, a critical element in maintaining and ex-
panding world prosperity — the first in which we can apply lessons learned about the
structure of the GATS and the difficult specialized services negotiating process. In
general, the overarching objective of the United States Government in the negotia-
tions should be to both broaden and deepen the commitments made in the GATS.
Contestable markets in every sector and in every WTO member is the ultimate goal.
Trade liberalization through Services 2000 offers the main chance for a quantum
leap in world prosperity. The new industrial revolution — the information revolution
or the “Third Wave” — has made innovation and efficiency in the production of serv-
ices integral to economic growth. Services inputs are now a central factor in com-
petitive success in manufacturing and agriculture. Telecommunications, transpor-
tation, finance, insurance, distribution and information services underpin all forms
of international trade and all aspects of global economic activity.
To maximize opportunities of Services 2000 it is essential that the format for the
broader negotiations permits sufficient allocation of resources to the GATS negotia-
tion and does not hamper reaching substantive agreements on services in a short
time frame.
We believe that the following factors should come to bear toward a successful new
effort in services.
• A sound basis for making substantial progress in services in the 2000 negotia-
tions exists. Progress made in sectors such as telecommunications and financial
services is due to the realization by developing economies that services are the basis
for economic modernization.
• The tumultuous financial and economic stresses of the past year will lead not
to retrenchment, but instead will further progress toward liberalization.
• Through several rounds of negotiations under the WTO, countries learned to ne-
gotiate within the complex GATS framework.
B. Structural and Negotiating Issues
Since its conclusion in 1994 the GATS has drawn considerable criticism because
of its complex structure which facilitates obfuscation, not liberalization. In this
paper, we will not elaborate on the reasons for this. Instead, the primary issue for
negotiators is whether in these negotiations the failings of the GATS architecture
should be addressed.
We believe the answer must be derived from the twin objectives of (1) obtaining
maximum liberalization in (2) the shortest time. If improvements in the GATS
structure can be made quickly and in a way that facilitates the liberalization proc-
ess, then it is a worthwhile effort. Otherwise, trade liberalization should not be de-
layed by a concentration of resources on structural GATS reform. In our view, GATS
reform is secondary to liberalization.
Classification and Dynamic Definition of Services
The existing classification of services used in the GATS is outdated and inad-
equate. It omits certain services and inappropriately categorizes others. It should be
revised to reflect accurately the real structure of services industries in order to fa-
cilitate the removal of barriers to trade in those services. We make specific rec-
ommendations with regard to classification in the sectoral sections of this submis-
sion. However, we feel that another useful exercise would be to review the classifica-
tion scheme across sectors so as to rationalize the entire structure to reduce overlap
and redundancy where appropriate. This has not been undertaken as a part of this
submission.
Extending the Coverage of GATS Commitments
Apart from the issues of GATS architectural reform is the need to broaden and
deepen the substantive commitments to liberalization made within the GATS. The
GATS lacks, for the most part, substantive commitments. The new negotiations
must secure broader commitments to national treatment and market access in as
many sectors as possible. Current scheduled exceptions are too broad, and must be
honed so only the most sensitive issues are excluded.
76
Innovative Negotiating Strategies
We urge negotiators to explore options in developing generic or formulaic ap-
proaches to negotiating the liberalization of market access barriers, including nega-
tive list schedules, sectoral commitments, horizontal commitments of revised modes
of supply, and other approaches which can move beyond the traditional “request-
offer” format and speed the conclusion of agreements.
C. Regulatory Reform
In order to pursue meaningful services negotiations, WTO members will have to
consider making adjustments to their regulatory regimes. “Regulatory reform” is a
common set of principles that should be used as a guide or a test to regulations in
individual sectors. Sometimes referred to as “pro-competitive” regulatory principles,
they create a transparent framework of rules that permit markets to operate as
freely as possible while providing necessary protections — for example in the case of
the banking sector, ensuring safety and soundness.
The “Reference Paper” negotiated as part of the WTO Agreement on Basic Tele-
communications is a model that should guide the development of a framework for
dealing with regulatory reforms in the Services 2000 Negotiations. The regulatory
principles embodied in this paper have already had an important influence on re-
shaping national regulatory systems towards a more market-oriented approach. The
key is effective implementation of those principles — in their common, pro-competi-
tive, open market interpretation and application. We must learn from experience.
The Reference Paper, we are discovering, must be interpreted clearly and forcefully
for dispute settlement to be effective in most instances. Similar initiatives in other
sectors should attempt to include specific and targeted language where possible.
Regulation should ensure that consumers (users) have access to quality, reason-
ably-priced services that are available from reliable producers. Government’s role is
to promote fair competition, protecting buyers from misleading, collusive, and other
anti-competitive practices. Regulation should have four central attributes:
• Adequacy: it should be sufficient to rectify serious market imperfections and
thus protect the public.
• Impartiality: governments should accord no one or no group of competitors, for-
eign or domestic, a more favorable position than accorded other competitors.
• Least intrusive: governments should apply regulation in ways that efficiently
opens that market and that least disrupt the smooth functioning of markets once
opened.
• Transparency: laws and regulations should be easily available to the public, and
the processes for arriving at regulations should be open and accessible to the public
for comment.
There is a substantial basis of support in certain industry sectors for efforts to
achieve “regulatory reform.” Regulations are easily used to frustrate market access
and national treatment commitments. Regulatory conflicts are often a major source
of trade disputes. Countries should have an interest in regulatory reform because
it is a key to reviving high growth rates. This area should be a major focus of the
new negotiations, especially where incumbent producers have monopoly or residual
market power as a result of their incumbency or historic position.
D. Electronic Commerce
International trade in services, particularly cross-border trade, is conducted to a
large and increasing extent through electronic means. Computer technology has
made many services tradable, which until recently were not. Electronic commerce
and the Internet have thus added a new technological means of facilitating trade,
adding digitized information flows to physical flows, much as ships increased trade
over merely land-based movement of goods.
The supply of services by electronic means can take place in any of the four modes
set out in the GATS framework, just as the supply of services by physical means
can. Accordingly, the supply of services by electronic technolo^ is covered by the
GATS in the same way as all other means of delivery. Countries’ commitments in
the GATS apply to transactions whether by digital, or traditional, forms of commu-
nication.
We reject the idea that there is a class of services that can be labeled electronic
commerce and thus be negotiated separately. There may be services products that
result from wholly new technological applications or inventions that might be identi-
fied as electronic commerce, but these are more appropriately labeled “information
technology services,” or services within specific sectors. Barriers to these new forms
of services can be negotiated by sector or in a separate information technology serv-
ices sector.
77
On the other hand, it is also necessary to recognize the relationship between elec-
tronic commerce and specific industry sectors. Electronic commerce as a means of
delivery cannot reach its full potential without significant commitments in virtually
every industry sector. The ability to provide services across borders is a necessary
prerequisite for the robust development and growth of electronic commerce. If serv-
ice provision across borders is not permitted, then the ability to deliver those serv-
ices electronically will be constrained and fragmented in national markets.
E. Government Procurement
Governments spend billions of dollars on procurement of services. In many coun-
tries this procurement is conducted in closed processes that work against foreign
suppliers. A two-pronged effort is now under way in the WTO. One prong of this
effort is to achieve agreement on transparency measures so that all WTO members
can commit themselves to transparent procedures without yet making new commit-
ments to market access and national treatment. The other is to simplify the existing
Agreement on Government Procurement which has 27 signatories, including the
U.S., to increase its adoption by member countries. The core of this document would
remain a commitment to permit foreign bidders to receive national treatment as
they compete for government awards. We understand that government procurement
is a sensitive subject and that commitments in this area may need to be phased over
a period of time. However, we also feel it is an important area for progress to be
made. The impact of governments being able to obtain services globally is quite sub-
stantial. The possibility is to dramatically improve the services which governments
provide to their citizens, and to lower costs. This will have a beneficial effect on
economies and society worldwide.
We support the goal of the Quad to achieve a Transparency Agreement in 1999.
In addition, we feel that there are a set of overall objectives for services which need
to be achieved in this area. Whether these objectives can best be met through exist-
ing mechanisms or through the Services 2000 negotiations is of less consequence to
us than the fact that they are actually achieved. Therefore, we believe that the ob-
jectives in this area should be the following:
• Insure transparency.
• Insure access to an independent appeals and dispute resolution process.
• Insure full market access and national treatment.
F. Conclusion
The Services 2000 Negotiations, thus, are an important milestone. They offer the
opportunity to move considerably beyond the status quo and to make progress in
all service industry sectors. It is important not to be sidetracked by architectural
and negotiating structure, rather all the effort should focus on achieving further lib-
eralization of services and the inclusion of regulatory reform and government pro-
curement.
II. Distribution Services
A. Sector Status
The U.S. retail industry, represented by its trade association, the National Retail
Federation (NRF), strongly supports negotiations at the World Trade Organization
(WTO) to further liberalize trade in distribution services. A growing number of U.S.
retailers recognize that there are many attractive business opportunities outside the
United States. Many foreign countries have a growing middle class that increasingly
demands the quality of service and broad selection of products that U.S. retailers
can offer at competitive prices. At the same time, many of these countries have com-
paratively few retail outlets per capita.
Retail opportunities abound even in mature markets where one increasingly sees
the business signs of familiar U.S. stores in many downtown and suburban shopping
areas. Notwithstanding the current global economic situation, many U.S. depart-
ment, specialty, discount, and mass merchandise retail companies have opened
stores abroad and are looking to expand their foreign operations to meet this grow-
ing consumer demand outside the United States.
In the Uruguay Round General Agreement on Trade and Services (GATS), a num-
ber of countries agreed to include commitments in their GATS schedules to bind at
least some part of trade in distribution services under the rules of the WTO. These
countries include our largest trading partners — Canada, Mexico, the European
Union, and Japan. Among the general categories included under distribution serv-
ices:
• 33 countries scheduled commitments on retail services.
• 34 countries scheduled commitments on wholesale services.
78
• 23 countries scheduled commitments on franchising.
• 21 countries scheduled commitments on commercial agents.
• 2 countries scheduled under “other” distribution services.
In many instances, these scheduled concessions were rather modest and included
broad exceptions.
B. Classification
The WTO Services Sectoral Classification List defines “distribution services” as
encompassing retailing, wholesaling, franchising, and commission agents. This defi-
nition is, however, quite broad and somewhat vague. Therefore, negotiations at the
WTO in this sector must take into consideration the entire network of activities that
are necessary to support retail and other distribution services operations. For exam-
ple, in the negotiations between the United States and China on China’s accession
to the WTO, the area of distribution services covers all activities that support retail
and other distribution services operation, from the port of entry to the store, and
ultimately to the customer — e.g., customs clearance, storage and warehousing serv-
ices; road, rail, water, and air transportation services; marketing; after-sales serv-
ices and customer support; control of distribution networks and wholesale outlets;
and protection of retail trademarks. It is necessary to recognize that barriers in any
of these areas will disrupt the efficient operation of the distribution chain and, in
order to support successful retail and other distribution services operations, barriers
in all areas supporting distribution services operations must be addressed in some
manner.
C. Barriers
In many countries, opportunities for U.S. retailers and other providers of distribu-
tion services to establish and maintain and commercial presence are limited by var-
ious laws, regulations, and policies. Some countries have protected their small stores
from competition by limiting the size of retail establishments and placing arbitrary
and onerous restrictions on where they may locate, price they may charge, and how
they may promote products. Restrictions imposed by countries to protect so-called
“ cultural industries” have significantly hindered the establishment of retail oper-
ations by large U.S. booksellers. U.S. direct sellers and other retail companies have
been severely hampered in establishing and/or expanding business operations in
countries as a result of local sourcing requirements, and tight limitations over own-
ership and control of distribution systems. Restrictions on investment, limitations
on foreign ownership, restrictions on opening hours, constraints on the typesducts
that may be sold to protect local monopolies, lack of adequate protection for retail
trademarks, and the non-transparent and arbitrary application of commercial laws
and regulations are further examples of barriers facing U.S. retailers. In addition,
some countries have undermined the value of commitments they have already
scheduled at the WTO on distribution services by including broad exceptions permit-
ting restrictions to be imposed under a vague “economic needs test.”
The reduction of such barriers to trade in distribution services warrants greater
attention through specific sectoral negotiations at the WTO for several reasons.
Since trade in distribution services includes wholesaling, retailing, and franchising,
this sector represents the last link in the trade chain to the consumer and is, there-
fore, essential to a well-functioning free and open trading regime. Larger retail es-
tablishments are more likely to sell imported along with domestically-made prod-
ucts. Moreover, market access is only meaningful if goods can be effectively distrib-
uted at the retail level.
D. Negotiating Objectives
The U.S. retail industry strongly urges U.S. negotiators to seek the elimination
of foreign restrictions to trade in distribution services. Once negotiations are under-
way, the United States should focus generally on:
• Obtaining commitments from as many countries as possible to bind the dis-
tribution services sector in their GATS schedules.
• Limiting as much as possible the number of exceptions taken by countries in
their schedule of commitments on distribution services.
• Persuading countries to refrain from general, open-ended exceptions in their
schedule of commitments on distribution services.
• Broadening and deepening the commitments from countries that have already
included distribution services in their GATS schedules.
• Obtaining commitments that allow for full market access for distribution serv-
ices under the principle of national treatment, rather than merely enshrining the
current status quo.
79
E. Economic Impact
In order to achieve the goals listed above, U.S. negotiators should emphasize the
economic and employment benefits that other countries would realize by opening up
and liberalizing their distribution services sector. For example, the United States
has no significant restrictions on the retail services. Nearly one in five American
workers is employed in retail jobs that are well-paying and require a marketable
set of skills. Moreover, the U.S. retail industry registered sales receipts in 1997 of
more that $2.5 trillion and economic activity in the sector has a significant multi-
plier effect throughout the U.S. economy. Thus, the retail sector alone adds substan-
tially to U.S. Gross Domestic Product (GDP), economic growth, higher emplo 3 nnent,
and lower inflation. In addition, the ability of the U.S. retailers to provide American
consumers with a wide variety of reasonably-priced products is a substantial con-
tributor to a high standard of living in the United States.
U.S. negotiators should impress on their foreign counterparts that, as in the
United States, an open and thriving retail industry and distribution services sector
generally, will be an important factor in improving the standard of living of their
citizens, expanding economic activity and growth, and developing a modern con-
sumer society. Those benefits should not be taken lightly. When U.S. retailers estab-
lish commercial operations in a foreign country, those operations:
• Provide much needed local investment.
• Create jobs for many local people, not only in the retail establishment itself, but
also in the warehouses, and transportation and advertising services that support
those operations.
• Allow local workers to develop business expertise and a better understanding
about proper business practices in the services sector.
• Provide local consumers with a better selection of goods at lower prices that will
help improve the quality of their lives.
• Make their country’s retail sector and the economy as a whole more efficient.
III. Express Delivery Services
A. Sector Status
Express delivery service, as provided by companies such as DHL, Eederal Express,
TNT and United Parcel Service, is a relatively new and rapidly expanding industry,
having evolved during the past two decades in response to the needs of global inter-
national commerce. The express transportation industry specializes in time-definite,
reliable transportation services for documents, packages and freight. Express deliv-
ery has grown increasingly important to businesses needing to use time-sensitive,
“just-in-time” manufacturing techniques and supply-chain logistics in order to re-
main internationally competitive. The express industry has revolutionized the way
companies do business worldwide, enabling businesses to rely on predictable, expe-
ditious delivery of supplies. Producers using supplies from overseas no longer need
to maintain costly inventories, nor do business persons need to wait extended peri-
ods of time for important documents. In addition, consumers now have the option
of receiving international shipments on an expedited basis.
Increased reliance on express shipments has propelled the industry to average an-
nual growth rates of 20 percent for the past two decades. The industry’s explosive
growth is reflected in the rapid expansion of air cargo shipments: the expedited
movement of cargo by air now accounts for 37 percent of the value of world trade,
a share which is expected to continue to increase.
The express transportation industry is essential to the future growth of world
trade and commerce, as more and more trade is centered on the type of high-value
goods that are carried by our industry, such as electronics, computers and computer
parts, software, optics, precision equipment, medicine, medical supplies, pharma-
ceuticals, aircraft and auto parts, avionics, fashions and high-value perishables. In
addition, the industry encourages small and medium-sized businesses to grow by en-
abling them to participate in international trade. The express transportation sector,
with its integrated services that provide door-to-door delivery, frees small businesses
from the burdensome and costly tasks of arranging for the transportation of their
goods through a myriad of unrelated and often non-communicating parties.
Express delivery operators, represented through their trade association, the Air
Courier Conference of America (ACCA), strongly support free and open trade and
investment worldwide. Express operators provide integrated, door-to-door delivery
service for documents and packages, and customers expect value-added services like
time guarantees, electronic information, brokerage services and more. Express cus-
tomers are not as concerned with how their documents or parcels are moved — just
that they arrive on time. This could be by plane, train, truck, van, automobile, mo-
80
torcycle, or even gondola. Consequently, a broad spectrum of issues affects the ex-
press industry, and includes laws and regulations in the areas of intermodal trans-
portation, air auxiliary services, distribution, warehousing, customs, postal, tele-
communications, logistics, brokerage, insurance, and freight forwarding. For this
reason, barriers to international trade in the express industry can involve trade re-
strictions and trade distorting measures in any of these pertinent service sectors.
B. Classification
Under the Uruguay Round’s Services Sectoral Classification List, express delivery
services are currently classified as “courier services” — a communications service
(CPC 7512), along with postal, telecommunications and audiovisual services. This
classification fails to reflect the true nature of express delivery services, which pro-
vide for regular exchange of physical items over a network of locations and, as de-
scribed above, incorporate transportation, communications and other services.
Express delivery services should be reclassified to more accurately reflect the na-
ture of express operations which, at a minimum:
• Provide the business community and general public with regular (usually every
business day), expedited and reliable collection, transport and delivery of physical
objects across a network of geographic areas.
• have management and communication systems that monitor and ensure end-to-
end quality of service; and
• Involve the operation of such offices, buildings, telecommunications facilities,
computers, sorting equipment, automobiles, trucks, aircraft, and other vehicles as
may be necessary to accomplish the basic function of express delivery.
A reclassification of the industry would facilitate GATS 2000 negotiations that are
meaningful to the industry.
C. Barriers
As described above, barriers in any of the numerous operational areas encom-
passed by express operators can hinder express delivery services. Among the most
persistent problems faced by the industry are inconsistent customs clearance poli-
cies that add costs and delays to express services. These barriers include:
• Restrictions on the value and weight of express shipments.
• Delays, generally of at least one day and up to 96 hours, from lengthy customs
clearance procedures.
• Cargo handling restrictions that force express carriers to use local handling
companies — rather than our own employees — to transport our express shipments
from the baggage collection area to warehouses where they can clear local customs.
• Arbitrary revaluation of declared value of shipments by customs.
• Imposition of a variety of charges and fees for express shipments, including
shipments that are transiting one country on their way to their ultimate destina-
tion.
To eliminate these and other barriers, ACCA believes that the WTO should re-
quire all members to adopt and implement the express guidelines of the World Cus-
toms Organization.
Because express operators provide integrated, door-to-door services, barriers to
any element of transportation linked to these services pose a problem for the indus-
try. Unfortunately, in markets worldwide ACCA members encounter a variety of
transportation restrictions that limit — and increase the cost of — express service. For
the express sector to achieve meaningful trade liberalization under the WTO, it
must be accorded access to land, air and other transportation infrastructures in all
markets. For Example, arbitrary operating restrictions on carriers to limit their
market, such as types of equipment and vehicles that can be used, and weight or
size of packages, must be prohibited.
Firms also face anti-competitive practices in many markets, particularly with re-
spect to postal operations. Because some of the industry’s operations are postal-re-
lated (e.g., the delivery of documents and small packages), express operators are fre-
quently affected by postal policies in foreign countries. In fact, throughout the world,
countries exercise varying degrees of authority over the delivery of printed matter.
Many countries have vested the national postal service with local monopolies over
the pick-up and delivery of letters and documents. This often imposes unfair or un-
reasonable restrictions on international service, which limits the operations of inter-
national express service companies. While we are not advocating that U.S. policy-
makers seek the dissolution of national monopolies for domestic postal services, we
do believe that the domestic monopoly claim should not be extended unfairly and
unreasonably to encompass cross-border services. Unified, end-to-end administrative
control makes rapid and reliable international express service possible.
U.S. negotiators should seek WTO commitments that would:
81
• Prohibit a foreign government from determining unilaterally the basic condi-
tions of express service to and from the United States (market entry, price regula-
tion, operating restrictions, and extraordinary or discriminatory teixation).
• Ensure that a foreign postal monopoly does not have an outright prohibition
against the provision of international service by U.S. express delivery providers.
• Prohibit profits derived from services provided by national postal authorities
from subsidizing services that compete with foreign companies.
• Prohibit teixation of private sector companies from subsidizing a national postal
administration’s services.
• Ensure that national postal administration’s parcel and non-monopoly docu-
ment services that compete directly with foreign companies would be subject to ef-
fective and impartial regulatory scrutiny to protect against illegitimate cross-sub-
sidy.
• Ensure that a postal administration’s competitive services be subject to the
same laws and regulations imposed on private companies.
• Prohibit a foreign country from unilaterally selecting the U.S. express carriers
that may service an international market with restricted entry.
• Prohibit a teix on bilateral services that exceeds the net cost to a legitimate local
monopoly carrier.
• Prohibit discriminatory treatment of U.S. carriers.
D. Negotiating Objectives
With respect to the WTO negotiating agenda, we urge that express delivery serv-
ices be a focus of the GATS 2000 Negotiations. Specifically, we advocate the negotia-
tion of pro-competitive regulatory principles for the express sector. These principles
should be legally binding on all WTO members, just as is the case for the tele-
communications pro-competitive regulatory principles agreed to during the previous
GATS negotiations.
ACCA has detailed a proposed set of pro-competitive regulatory principles in a
separate submission to USTR. These principles would encompass liberalized cus-
toms, postal, air cargo and other policies. We look forward to working with USTR
throughout the GATS 2000 process to liberalize treatment of express delivery serv-
ices, thereby expediting the flow of goods globally.
IV. Financial Services
A. Benefits
Increasing competition in financial services markets through liberalization of re-
straints on foreign participation in financial services activities will enhance eco-
nomic growth for all countries. Such liberalization will help provide developing coun-
tries with: (1) essential information and infrastructure to speed their modernization;
(2) improved health, safety and retirement security for working people and; (3) the
broadest range of products and services at the lowest cost for consumers. Addition-
ally, it will help enhance investor confidence, and attract and retain private long-
term direct investment. Liberalization promotes the development of modern, effi-
cient, well-regulated financial markets.
B. Sector Status
WTO financial services negotiations provide an excellent opportunity to achieve
meaningful liberalization on a global scale. By securing binding commitments by a
significant number of countries of the right of foreign companies to establish and
to own all or a majority share of their direct investments, the 1997 negotiations
made important progress.
Even though the 1997 agreement didn’t include comprehensive agreements to re-
duce or eliminate investment barriers for foreign financial service providers, the
agreement made major progress in a number of countries. Much remains to be done
in the upcoming negotiations and the 1997 Agreement serves as a strong foundation
to add truly liberalizing commitments.
C. Barriers
The financial services 2000 negotiations offer an extremely important opportunity
to build on this base in a number of ways:
• Further the scope of commitments by reducing the number of exceptions coun-
tries have written into their commitment schedules.
• Expand rights of establishment and ownership. While progress has been made
in securing bindings of existing practice in regard to establishment and full or ma-
82
jority ownership, these rights should be expanded and secured from more countries
that made no such commitments.
• Expand cross border trading rights. Little attention has been given to securing
rights to sell financial services across borders in negotiations to date. WTO members
should, where appropriate take into account the views and legitimate objectives of
the regulators.
• Modernize and reform regulatory structures that frustrate trade commitment
and competition. Regulatory regimes can be used to block gains made in trade nego-
tiations by imposing unnecessary restraints on foreign financial services suppliers,
and thus favoring local suppliers. Such practices prevent realization of the goal of
national treatment. They are inherently anti-competitive and inefficient. These “pro-
competitive regulatory reforms” should be directed at establishing fair, competitive
markets by focusing on solvency and transparency to provide the most effective pro-
tection of consumers and markets.
• Achieve impartial administration of regulations. Article VT of the GATS, apply-
ing to Domestic Regulation, requires that “in sectors where specific commitments
are undertaken, each Member shall ensure that all measures of general application
affecting trade in services are administered in a reasonable, objective, and impartial
manner.” It further requires each member to set up tribunals or procedures which
provide prompt review and remedies for administrative decisions affecting trade in
services, and it establishes that members must provide impartial review of these
procedures. These requirements for reasonable, objective and impartial administra-
tion of regulations should be amplified by the establishment of principles against
which regulations should be tested.
• Promote administrative and regulatory transparency. Clear and reliable infor-
mation about a country’s financial services laws and practices advances equitable
trade and competition, reduces the possibility of manipulation, and is an essential
component of a liberalizing agreement. Non-transparent regulations hamper foreign
firms’ ability to do business. Transparency requirements make countries more ac-
countable for their actions and provide information needed to evaluate compliance
with the agreement.
• Reduce and remove obstacles to the free movement of people. The temporary
posting of key business personnel should be facilitated by creating a system of easily
obtainable and renewable visas, and by easing or removal of other restrictions.
D. Classification
Should include language necessary to provide for protection and applicability for
pensions, long-term care, disability income and life insurance and reinsurance.
E. Negotiating Objectives
• Foreign investors should have the right to establish through a wholly owned
presence or other form of business ownership, and to operate competitively through
established vehicles available to national companies.
• Foreign investors should have the same access to domestic and international
markets as domestic companies. They should be treated to regulatory and other pur-
poses on the same basis as domestic companies.
• Unnecessary restrictions on cross-border financial services businesses and con-
sumption of services abroad should be removed, to encourage trade without requir-
ing establishment.
• Creating a system of easily obtained and renewable permits should facilitate
the temporary posting of key business personnel.
• Existing investments should be grandfathered by Member countries that did not
commit to do so in the 1997 Agreement.
• Countries wishing to accede to membership in the WTO should do so on the
basis of commitments to substantial financial liberalization consistent with the 1997
Financial Services Agreement and the goals set forth above, resulting in commer-
cially meaningful access. Countries should be permitted to participate in the nego-
tiations in a way which encourages them to make such commitments.
• Financial regulation principles leading to the development of sound, more com-
petitive markets should be negotiated. Such regulation will foster risk management
standards, transparency, product diversification and consumer choice important for
public policy purposes. It will also enhance financial security for citizens, nations
and the global financial system.
• Transparent laws and regulations are necessary to liberalize financial services.
Clear and reliable information about a country’s financial services laws and prac-
tices promotes equitable trade and competition, and reduce the possibility of manip-
ulation.
83
• A notification waiting period for all new national and sub-national taxation of
financial services should be established to provide industry and governments with
a minimum of one year to factor changing taxation rates in technical, solvency and
pricing decisions.
• Nations should commit to lock in and improve pension policies that encourage
private savings for retirement, in recognition of worldwide aging populations and re-
lated pressure on government social security systems.
V. Health Care Services
A. Sector Status
There appears to be little coverage of healthcare services in current agreements
between countries; therefore, these comments reflect preliminary thought process
around GATS negotiations for health care services. We intend to continue to gather
information and talk with businesses that are working throughout the world in the
health care services sector to bring additional clarity to the submission.
There are several emerging global trends that could beneht U.S. health care serv-
ice suppliers in overseas markets including the rapid growth in health care expendi-
tures in a large number of countries. Rapidly expanding health care expenditures
in many developed countries are due to an increase in their aged populations, the
demographic segment that uses health care services most intensively. The entire
spectrum of geriatric services, both community and institutionalization, for senior
citizens should be explored. Increased health expenditures in rapidly developing
economies are occurring as newly emerging middle classes demand the levels of
health care previously enjoyed only in more developed economies, such as the U.S.
and Western Europe.
We believe we can make much progress in the negotiations to allow the oppor-
tunity for U.S. businesses to expand into foreign health care markets. In the U.S.
competition has provided reductions in the cost of health care as well as increased
quality in the care that is being provided. Some types of services are consulting and
training for local pharmacy management; consulting and training for health care in-
cluding treatment of abusive behaviors; telemedicine; development of treatment pro-
tocols to enhance healthcare quality; sharing expertise on appropriate treatment;
and, management of overseas health care institutions.
According to official statistics from the U.S. Department of Commerce, in 1996
U.S. receipts of health care services amounted to $872 million. This number was 2
percentage points less than the average annual export growth rate of nearly 6 per-
cent for health care services during 1991-1995. U.S. cross-border imports of health
care services amounted to an estimated $550 million in 1996. U.S. receipts and pay-
ments for health care services accounted for less than 1 percent of such cross-border
trade in all service industries in 1996. The U.S. cross-border trade surplus in health
care services was $322 million in 1996.
B. Classification
Below are the health care entries from the WTO’s Services Sectoral Classihcation
List (W-120) with reference numbers to the UN’s Central Product Classification
(CPC) numbers. In current practice, many WTO members do not use the CPC ref-
erences in their scheduled commitments; practices may vary per sector. While the
W-120 and CPC classifications provide a reasonable start toward definition of the
health care services that should be covered in this negotiation, we need flexibility.
We do not want to be locked into only these specific existing classihcations. For ex-
ample, we need flexibility to include some services which may not be captured by
these definitions. We also recognize that some of these services may be included as
parts of goods negotiations or in the definitions of other service sectors. We will con-
tinue our work to provide negotiators with the most detailed and comprehensive de-
scription of the health care services we are now providing or which we will want
to provide.
WTO Services Sectoral Classification List (W-120)
Sectors and Sub-Sectors
1. Business Services
2. A. Professional Services
h. Medical and Dental Services 9312
i. Veterinary Services 932
j. Services provided by midwives, nurses, physiotherapists and para-medical
personnel 93191
84
8. Health Related and Social Services
A. Hospital Services 9311
B. Other Human Health Services 9319
C. Barriers
Historically, health care services in many foreign countries have largely been the
responsibility of the public sector. This public ownership of health care has made
it difficult for U.S. private-sector health care providers to market in foreign coun-
tries. In addition, there are substantive differences in emerging markets vs. OECD
countries. In most emerging markets there are few barriers to these services but
barriers can be erected in the future as laws and regulations are enacted absent
commitments in writing. Existing regulations are by and large not a problem in
emerging markets.
However, existing regulations do present serious barriers in OECD countries, in-
cluding:
• Restricting licensing of health care professionals.
• Excessive privacy and confidentiality regulations.
• Lack of transparency in the OECD countries’ regulations.
• Difficulty processing permits for work and for facilities.
D. Negotiating Objectives
Three general objectives are to encourage more privatization, to promote pro-com-
petitive regulatory reform, and to obtain liberalization. Specific objectives are:
• Transparent licensing of health care professionals and facilities, which do not
place unnecessary or discriminatory burdens on U.S. providers.
• Obtain market access and national treatment commitments allowing provisions
of all health care services cross border.
• Allow majority foreign ownership of health care facilities.
• Obtain a commitment for the cross-border provision and transfer of health care
information.
• Seek inclusion of health care in WTO government procurement disciplines.
• Strengthen international co-operation to promote pro-competitive regulatory re-
form across countries.
• Negotiate Mutual Recognition Agreements (MRAs) for licensing of professionals
and cooperative agreements on regulation of facilities.
• Develop principles to guide regulators so as to minimize unnecessary costs on
trade and investment in the health care sector.
• Simplify regulations and provide transparency for movement of personnel, both
professionals and patients.
VI. Information Technology Services
A. Sector Status
The information services industry has a vital interest in the successful conclusion
of the World Trade Organization (WTO) 2000 Services negotiations. Information
technology, while a service industry itself, is critical to the success of the other serv-
ices industries, which, in turn provide a substantial market for information services.
As the services sector thrives, so will the information services sector.
While substantive commitments by many countries in the area of value-added
services (information services) are included in the General Agreement on Trade in
Services (GATS), some commitments are weak, while others are non-existent. The
2000 negotiations provide an opportunity to broaden and deepen the current com-
mitments.
Recent international agreements affecting information technology services have
opened related sectors, such as basic and enhanced telecommunications and offered
protection and trade liberalization in other sectors (Trade-related Intellectual Prop-
erty — TRIPS, and the Information Technology Agreement — ITA).
GATS Annex on Telecommunications and the WTO Agreement on Basic Tele-
communications Services
The Enhanced Telecommunications Annex provides substantial commitments for
information technology services and for access to telecommunications networks for
the provision of such services. Examples of services covered under this Annex are
electronic mail, on-line information and database retrieval, code and protocol conver-
sion, data processing, and electronic data interchange. While a number of countries
listed significant limitations with regard to foreign ownership and the required use
85
of public networks, on the whole, the provision of information technology services
is relatively open and burden-free.
The 1997 WTO Agreement on Basic Telecommunications Services (GBT) and its
reference paper on pro-competitive regulatory principles is an integral element of
providing a liberalized environment for trade in information technology services.
Under a very broad and essentially open-ended definition employed for the negotia-
tions, basic telecommunications are considered any telecommunications transport
networks or services and the schedules of commitments cover a wide variety of serv-
ices fitting this definition. Some examples of basic telecommunications include: voice
telephone services, packet-switched data transmission services; circuit-switched data
transmission services, telex, telegraph, facsimile and private leased circuit services,
analog/digital cellular/mobile telephone services, mobile data service, paging, per-
sonal communications services, satellite-based mobile services, fixed satellite serv-
ices, VSAT services, gateway earthstation services, teleconferencing, video transport
and trunked radio system services. Categories of service included: local, long dis-
tance, international, wire-based, radio based, resale, facilities-based, for public use,
and for non-public use (closed user groups).
The agreement, which opened trade in the $600 billion global basic telecommuni-
cations market, will promote competition in world telecommunications markets,
spur innovation and competition-based pricing and speed the delivery of robust in-
formation products and services to consumers everywhere. Ultimately, we believe
the agreement will expand the market not only for telecommunications, but for
other information service providers as well.
The GBT commitments are a key element in securing the infrastructure for trade
in information services. Together with the agreement on enhanced telecommuni-
cations services, we believe many of the basic elements to secure access to infra-
structure over which information technology services thrive, are subject to existing
liberalization commitments. It is our understanding that the GATS Annex on En-
hanced Telecommunications Services and the GBT cover the delivery of services
electronically. We urge the USTR to enforce these existing commitments, expand
commitments from those who made limited commitments, and seek new commit-
ments from those who have not signed on to the GBT.
Information Technology Agreement (ITA)
Concluded in December 1996, the ITA provides for the elimination of customs du-
ties and other charges on information technology products through equal annual
tariff reductions and covers five main categories of IT products: computers, tele-
communications products, semiconductors, semiconductor manufacturing equipment,
software, and scientific instruments. The tariff reductions, which are scheduled to
begin on July 1, 1997 and to conclude on January 1, 2000, are to be implemented
by signatories on a most-favored-nation (MEN) basis.
The ITA will open up global trade in a wide array of information technology prod-
ucts, valued at over $500 billion, and spur growth of the global information infra-
structure. The USTR estimates that the ITA will provide a competitive boost of 1.8
million jobs in the U.S.
The agreement will bring significant benefits to software and telecommunications
companies. The agreement includes a broad definition of software products, which
covers multimedia and interactive software and “Nuisance tariffs” on software (tar-
iffs below 3%) will be eliminated as soon as July 1, 1997. The agreement also covers
a wide array of telecommunications equipment and products, including fiber optic
cable.
The ITA, while a goods-based (rather than services-based) agreement, is essential
to the liberalization of trade in information technology services, as it provides the
means to deliver IT services. We urge the USTR to work with its trading partners
in the WTO to expand commitments made in the ITA.
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Adequate and effective protection and enforcement of intellectual property rights
is a critical element in fostering the growth of IT globally. As electronic commerce
continues to grow it will become increasingly important that commitments to protect
intellectual property are enforced. In many countries, both developed and devel-
oping, civil and administrative procedures do not meet the enforcement standards
set forth in Part III of the TRIPS agreement. As more and more software is being
sold over the Internet, adequate and effective IPR enforcement becomes even more
important.
We recommend the USTR press other WTO members to meet the enforcement ob-
ligations outlined in Part III of the TRIPS Agreement.
86
B. Classification
Sector Classifications and Sub-Sectors (CPC Codes)
The emerging convergence between telecommunications services, broadcasting,
audiovisual services and information technology services has made clear distinctions
between sector classifications increasingly difficult. For example, a barrier that re-
stricts the number of foreign produced films from being broadcast or foreign publica-
tions from being distributed may affect both broadcasters who deliver films over the
Internet as well as the Internet Service Provider who runs the network over which
the films/publications are delivered.
We strongly encourage the USTR to review these classifications in a dialogue with
the various industry sectors involved. We also encourage the USTR to begin infor-
mal discussions on this topic with their trading partners.
Expanded Information Technology Services
Information technology has become so prevalent in the provision of many services
that the services themselves are being considered information technology services.
Call centers, for example, are so dependent on the underlying information tech-
nology that they are provided by many information technology providers as a rou-
tine service offering. Customer loyalty programs, order fulfillment functions, remote
monitoring services, remote inventory services and remote maintenance and repair
services are examples of such services. Some involve physical functions while others
such as remote monitoring are performed entirely electronically. Current computer
and related services section of the CPC (listed immediately below) is somewhat lim-
ited given the rapid advances in this dynamic sector.
CPC Computer and Related Services:
• Consultancy services related to the installation of computer hardware (841)
• Software implementation services (842)
• Data processing services (843)
• Data base services (844)
• Other (845 -i- 849)
The USTR should expand the definition of information technology services. We
recommend a number of services be included and the category be changed to infor-
mation technology services. We recommend the USTR consider the classification re-
vised CPC scheme below.
Information Technology Services:
• Consultancy services related to the installation of computer hardware
• Software implementation services
• Data processing services
• Data base services
• Management consulting
• Services related to management consulting
• Customer services
• Other
C. Barriers
The private sector has been the driving force behind the rapid growth, innovation,
and development of information technology services, the Internet and electronic
commerce. Despite this rapid growth, a few barriers remain. Elimination of these
barriers must be industry led and market driven. Consistent with the U.S. Adminis-
tration’s Framework for Global Electronic Commerce, we strongly recommend that
the USTR continue to recognize the course of industry leadership and self-regulation
Barriers also remain with regard to the current commitments of some countries.
Restrictions on foreign ownership and requirements for local partners of varying de-
scriptions hamper the ability to provide information technology services seamlessly.
In addition, requirements to use public networks and restrictions on the use of
leased lines also provide barriers to true global market access. Einally, national
treatment is not a reality in every country.
Practices in government procurement vary dramatically across the globe and offer
considerable barriers to the provision of information technology services to govern-
ments. They range from many of the OECD nations which have, both on paper and
in practice, highly organized and wholly transparent processes, to nations which
conduct procurement entirely behind closed doors. Likewise, a number of nations
have very open procurement markets while others are closed both to foreign firms
and to those firms not in favor, regardless of capability. Finally, there is the same
87
range of conduct regarding the ethics of procurement, with many “clean” systems
and just as many in which bribery and corruption are the norm.
The greatest barrier to the continued development of the information technology
industry globally, however, is the lack of market access and national treatment in
the industry sectors which information technology serves. If the financial services
industry is not permitted to sell mutual funds across borders, then the capability
of the information technology services industry to provide that service electronically
is moot. For the information technology services industry to reach its full potential
to deliver benefits to individuals as well as entire economies, the markets in every
other industry sector must be opened and liberalized.
D. Negotiating Objectives
We urge the USTR to set the following negotiating objectives:
• Expand the coverage of existing agreements in information technology related
and enabling areas such as the Enhanced Telecommunications Annex, the Basic
Telecommunications Services Agreement, and the Information Technology Agree-
ment.
• Develop a consensual view of and acceptance of the modes of supply as applied
to information technology services in the section above.
• Expand the definition of information technology services.
• Insure information technology services can be performed and delivered without
establishment.
• Achieve full market access and national treatment for information technology
services and for services in a broad range of other sectors.
• Seek commitments in government information technology services procurement
for full market access, national treatment, transparency, access to independent ap-
peals, and dispute resolution processes.
VII. Professional & Business-Related Services
A. Sector Status
Professional and business-related services are those services for which the pro-
vider requires specialized, technical knowledge — acquired through post-secondary
education or equivalent training or experience — which is adapted and applied to the
specific needs of business clients. Many of these services are performed by licensed
professionals for which the right to practice is controlled by the government and/
or professional bodies. These licensed professions tend to be more regulated than
commercial services because the license holders are authorized to practice restricted
activities in return for which they are expected to assume public interest respon-
sibilities. Examples include accountancy, architecture, engineering and law. Other
business-related services share common characteristics with the professions, such as
high levels of human and intellectual capital input and close interaction between
the provider and the client, but generally are not highly regulated or controlled by
licenses granted by government or professional bodies. Examples include manage-
ment and business, including computer-related, consulting services. Thus, this dis-
cussion topic overlaps, with some extent, with the section on information technology
services. [Please note that this section addresses the licensed professions most close-
ly associated with services provided to businesses and, thus, does not cover medical
doctors, dentists, nurses, pharmacists, beauticians, etc. The medical professions are
covered in the “Health Services” section].
Statistics on trade in services are notoriously poor, so it is difficult to know the
volume of trade in professional and business-related services worldwide. In the U.S.
balance-of-pa 3 mients category of “business, professional and technical services,” U.S.
providers exported $17.6 billion in 1996 and $21.3 billion in 1997. Imports were val-
ued at approximately one-quarter of these amounts. There is reason to believe, how-
ever, that these numbers substantially understate the level of international business
in this sector, because they do not include data on earnings from foreign invest-
ments and foreign affiliates, especially with respect to “accounting” firms and infor-
mation technology companies. Nor do they include fees generated by mobile service
providers, such as lawyers, architects, engineers and consultants, who serve tempo-
rarily in foreign countries hut are paid at home.
Professional and business-related services received substantial coverage in the
schedules of commitments under the General Agreement in Trade in Services
(GATS).
• More than 60 WTO member governments have made commitments in account-
ancy and related services, accounting for approximately 90 percent of the world
market measured by gross revenues. Virtually all these commitments confirmed the
status quo with respect to market access and national treatment.
88
• More than 40 WTO member governments made commitments on architectural
services, and just fewer than 30 made commitments on urban planning and land-
scape architectural services.
• More than 50 WTO member governments made commitments on engineering
services.
• More than 40 WTO member governments have made commitments in one or
more aspects of legal services. The commitments mostly cover advisory services on
international and home country law. The commitments are mostly in the nature of
a standstill and do not achieve the American bar’s objectives on Foreign Legal Con-
sultants or rules for examinations in foreign jurisdictions.
• More than 60 WTO member governments also made commitments in computer-
related services an management consultancy, also accounting for about 90 percent
of the world market measured by gross revenues. Again, the commitments largely
confirmed the status quo, which for the most part is relatively free of trade restric-
tion and discriminatory regulation.
It should also be noted that the WTO and the GATS have created an international
legal umbrella over substantial work initiated by the professions themselves in the
areas of mutual recognition and standards. Two examples follow:
• The International Union of Architects (UIA) Professional Practice Commission
has produced the “UIA Accord on Recommended International Standards of Profes-
sionalism in Architectural Practice.” The American Institute of Architects and the
Architectural Society of China serve as the Commissions’ joint secretariat. The docu-
ment was initially adopted by the UIA’s 91 national member sections in July 1996.
A revised and expanded edition, including recommended policy guidelines, will be
presented for adoption at the XXI UIA Assembly in June 1999 in Beijing. A primary
objective of this document is to allow member sections to more easily negotiate bilat-
eral mutual recognition agreements (MRAs).
• The American Institute of Certified Public Accountants (AICPA) strongly sup-
ports the work of the International Federation of Accountants and the International
Accounting Standards Committee in developing a body of widely-accepted inter-
national accounting and auditing standards and international guidelines on ethics.
In addition, the AICPA has joined with the National Association of State Boards of
Accountancy to complete MRAs with the Canadian Institute of Chartered Account-
ants and the Institute of Chartered Accountants in Australia. Additional discussions
are continuing with other professional bodies in Australia, England, Ireland, Mexico
and Scotland.
B. Classification
The professional and business-related services covered by this paper are found in
the following categories listed in the World Trade Organization’s (WTO) “Services
Sectoral Classification List.”
Business Services
Professional Services
Legal services
Accounting, auditing and bookkeeping services
Taxation services
Architectural services
Engineering services
Integrated engineering services
Computer and Related Services
Consultancy services related to the installation of computer hardware
Software implementation services
Other Business Services
Management consulting services
Services related to management consulting
CSI recommends that the U.S. Trade Representative seek the inclusion of several
additional classifications of professional and business-related services in the specific
commitments made by member governments. These are:
• Actuarial services.
• Counseling in business transactions.
• Participation in the governance of business organizations.
• Mediation, arbitration and similar non-judicial dispute resolution services.
• Public advocacy and lobbying.
In the area of computer-related services, the “Information Technology” section of
this paper makes a number of useful recommendations.
89
C. Barriers
International trade in professional and business-related services in conducted
both by individuals who have met specified professional qualification requirements
or have specialized business knowledge and by firms owned by and/or employing
these individuals. Professional and business-related services are rendered in all four
modes of delivery contemplated by the GATS. They may be provided across borders
by professionals travelling to another country or communicating electronically with
clients there. More typically, the services are provided by locally-established firms
affiliated with others abroad through ownership, contract or cooperative agreement.
And in some cases they are provided to foreign consumers visiting the provider’s
home jurisdiction.
The impediments to trade in professional and business-related services stem from
regulations intended to protect local providers from competition and, probably more
importantly, from domestic regulations intended to protect defined national inter-
ests. Most professions are enveloped in national and/or sub-national systems of reg-
ulation, which were developed to respond to particular circumstances and political
demands. These distinct systems have persisted even as the globalization of markets
has accelerated and, thus, have given rise to trade and investment barriers.
Impediments to Professional Firms
• Restrictions on the movement of capital and investment, such as foreign equity
limits, screening of investments and the application of economic needs tests, and re-
serving ownership to locally-qualified professionals.
• Restrictions on making current pajments, such as profit remittances and the
payment of royalties and fees across borders.
• Restrictions on the types of business structures permitted.
• Numerical, geographic or other restrictions on the establishment of branch of-
fices.
• Requirements to employ only local people and professionals or the use of quotas
to limit intra-firm transfers.
• Inadequate protection on intellectual property, such as software, practice meth-
odologies and training materials, as well as restriction on the use of international
firm names.
Impediments on Individual Professionals
• Onerous professional qualification requirements, such as citizenship, permanent
and/or prior residency, local university degrees, and excessively long experience re-
quirements, and administering qualification examinations in languages other than
the WTO working languages.
• The use of different technical standards or standards of practice in each na-
tional and/or sub-national jurisdiction.
• Difficulties in obtaining visas and work permits.
Impediments Affecting both Firms and Individuals
• The lack of transparency in the regulatory process, including the failure to
make laws and regulations available, closed decision-making processes, the lack of
opportunity to comment before rules are adopted, and the absence of appeal proc-
esses.
• Local establishment requirements.
• Rules either requiring or prohibiting relationship between foreign and local pro-
fessionals or professional firms.
• Customs duties on professional documents, project models, training materials,
promotional publications, and software.
• Scope-of-practice limitations that may prohibit the provision of selected or mul-
tiple services to clients.
• The assignment of contract by government agencies, the mandatory rotation of
providers, and “Buy National” policies.
• Prohibitions on advertising professional services.
• Reciprocity laws or regulatory requirements.
D. Benefits of Liberalization
Professional and business-related services are part of the intellectual capital in-
frastructure essential to the operation of modern economies. For example:
• Accounting and auditing services are critical to management control of enter-
prises and provide the assurance that underlies efficient capital markets.
• Architectural and engineering services are essential to the creation of modern
business structures and processes.
90
• Legal services make possible effective relations between buyers and sellers and
among business partners, as well as help to protect the investments and property
of national of one country transferred to another.
• Consulting services provide valuable management know-how, competitive in-
sight, and advice on modernizing and reengineering business enterprises.
Liberalization of trade and investment in this sector makes available to business
users state-of-the-art inputs to their production processes. Moreover, the inter-
national operation of professional and business-related service providers are impor-
tant conduits for transferring state-of-the-art technology and training, which has
ripple effects throughout the host economies. And many professional services firms
provide international networks by which host country services can be exported.
F. Negotiating Objectives
• U.S. negotiators should press governments that have not made specific commit-
ments on professional services to do so. The goal should be that all 132 WTO mem-
ber governments apply the GATS rules to professional and business-related services.
Some significant markets, such as India, Indonesia and the Philippines, are now
missing.
• U.S. negotiators should press other governments to remove as many of the “ex-
ceptions” in their scheduled commitments as possible. The aim should be full appli-
cation of the market access and national treatment rules to professional services.
• U.S. negotiators should champion “freedom of association” for U.S. and foreign
professionals, seeking to eliminate requirements or prohibitions of professional asso-
ciations in partnership or in other forms of “corporate” practice.
• U.S. negotiators should work for an agreement on business mobility (temporary
entry of business people), which would remove the visa requirements and red tape
for qualified professionals entering another WTO member country for specific, tem-
porary assignments.
• U.S. negotiators should work for horizontal disciplines on domestic regulation
of professional and business-related services under GATS Article VI that go beyond
the disciplines developed for the accountancy sector. In particular, they should seek
a meaningful “necessity test” under which onerous regulations could be challenged
as “more burdensome than necessary, transparency rules that allow interested par-
ties to comment in advance on proposed legislation, and pro-competitive regulatory
structures.
• U.S. negotiators should seek an extension of the principles of the Agreement on
Technical Barriers to Trade to service industries and professions.
• With respect specifically to legal services, U.S. negotiators should focus on two
objectives: (1) adoption of the concept of “foreign legal consultants” whereby lawyers
are permitted to practice their home country law (as well as third country and inter-
national law) in foreign jurisdictions; and (2) “model rules” on bar examinations that
assure the exams are related the areas of law to be practices, follow transparent
procedures, are based on information readily available (through training courses,
etc.), and are administered in one of the working languages of the WTO.
VIII. Telecommunications
A. Sector Status
As the new millennium fast approaches, it has become obvious that telecommuni-
cations networks provide the underlying infrastructure and services upon which
most of the world’s information and commerce depend. It is safe to say that without
a robust telecommunications infrastructure, the global economy as we know it today
would simply not exist. Vice President Gore has recently recognized that not only
is the telecommunications-enabled Global Information Infrastructure a vital under-
pinning of world trade, the GII has the capacity “to extend knowledge and pros-
perity to our most isolated inner cities, to the barrios, the favelas, the colonias and
our most remote rural villages; to bring 21st Century learning and communication
to places that don’t even have phone service today; to share specialized medical
technology where there are barely enough family doctors today; to strengthen de-
mocracy and freedom by putting it on-line, where it is so much harder for it to be
suppressed or denied.”
Privatization and liberalization of the world’s telecommunications markets will
provide the most efficient and effective means of insuring the global telecommuni-
cations infrastructure’s growth and enhancement. As experience in a number of
countries now amply demonstrates, a liberalized market leads to significant in-
creases in infrastructure development, more and better services, and lower prices
for consumers. Moreover, a liberalized, modern telecommunications system should
91
increase capital investment, thereby strengthening and facilitating growth of a na-
tion’s economy.
It now appears that much of the world’s commerce in the future will be transacted
over the Internet’s network of networks. A good deal of the communications will be
of the multimedia variety which will require advanced, broadband telecommuni-
cations services. Without liberalized open telecommunications markets, there will
not be sufficient incentives to upgrade what is rapidly becoming in many parts of
the world an inadequate, outdated telecommunications infrastructure.
WTO Agreement on Basic Telecommunications Services
The 1997 WTO Agreement on Basic Telecommunications Services (GBT), with its
accompanying Reference Paper, truly represents a watershed event not only for the
telecommunications industry, but also for the entire world economy. Seventy coun-
tries participated and agreed to move in varying degrees toward full, technology-
neutral, liberalization of their telecommunications sectors through market access,
foreign investment and adoption of pro-competitive regulatory principles.
The GBT was a landmark agreement in a number of ways. It was the first suc-
cessful sectoral negotiation — the agreement dealt only with telecommunications.
Changes in agriculture import quotas, for instance, could not be traded for conces-
sions in telecommunications, insuring that all benefits of the agreement accrue to
telecommunications alone. In addition, a Reference Paper containing pro-competitive
regulatory principles was developed and was incorporated into a majority of the
countries’ offers. This Reference Paper legally binds the countries into “how” they
will implement many parts of the agreement. Thus, promulgation of regulations in
accordance with the Reference Paper’s principles must be considered an integral
part of a country’s implementation of the GBT.
Under a very broad and essentially open-ended definition employed for the nego-
tiations, basic telecommunications was considered any telecommunications transport
network or services and the schedules of commitments cover a wide variety of serv-
ices fitting this definition. Some examples of basic telecommunications include: voice
telephone services, packet-switched data transmission services; circuit-switched data
transmission services, telex, telegraph, facsimile and private leased circuit services,
analog/digital cellular/mobile telephone services, mobile data service, paging, per-
sonal communications services, satellite-based mobile services, fixed satellite serv-
ices, VSAT services, gateway earth station services, teleconferencing, video trans-
port and trunked radio system services. Categories of service included: local, long
distance, international, wire-based, radio based, resale, facilities-based, for public
use, and for non-public use (closed user groups). As discussed below, some rethink-
ing of these categories of facilities and services may be in order.
In sum, the GBT and accompanying Reference Paper represents a tremendous
first step toward the ultimate goal of a fully open, competitive telecommunications
market worldwide. A good deal of work remains to be done, however. In addition,
it is important that new negotiations do not provide for countries to re-evaluate or
back away from existing commitments. New negotiations should build on existing
commitments.
B. Classifieation
Sector Classifications and Sub-Sectors (CPC Codes):
Clearly, telecommunications market developments of the past few years warrant
a reexamination of the applicability of the Standard Classification System last re-
vised in 1991. It may be appropriate for countries to agree to a standardized set
of services that are independent of the particular technology used to provide those
services.
C. Barriers
Although a monopoly telecommunications environment provided a fairly reliable,
working telephone system which served the world well for almost 100 years, most
of the rapid technological developments of the past two decades have resulted from
the increasingly competitive marketplace in a number of countries. Experience has
shown that the more open the market, in terms of free entry and exit and the num-
ber of competitors present, the more robust the competition and the better the result
for consumers.
Unfortunately, even in the wake of the GBT, most of the world’s telecommuni-
cations markets still contain barriers that restrict access, curtail the scope of the
playing field, or tilt it in a variety of ways. In accordance with their GBT commit-
ments, many countries already have privatized their national telecommunications
carriers, and others plan to do so in the near future. Privatization is an important
step toward introducing competition into markets, but privatization by itself will not
92
produce an open and fair competitive environment. Whether the incumbent carrier
is controlled by the government or is privately held, new entrants cannot effectively
compete in the market without full liberalization. In order for competition to flour-
ish, the regulator must be completely independent of the dominant carrier and must
actively implement and enforce pro-competitive principles such as those enumerated
in the GBT Reference Paper.
Barriers remain even under the current commitments of some countries. Restric-
tions on foreign ownership and requirements for local partners of var 3 dng descrip-
tions hamper the ability to provide telecommunications services seamlessly in these
countries or worldwide. In addition, requirements to use public networks and re-
strictions on the use of leased lines provide barriers to true global market access.
Nor is national treatment a reality in every country.
The licensing schemes of many countries pose another significant barrier to the
market and to full and fair competition. Restrictions on the number of licenses
awarded per geographic area, onerous qualifications for licensees, exorbitant fees,
and lack of transparency in the bidding and award process must be eliminated. In
many cases, the totality of these requirements effectively limits participation to a
handful of large carriers and prevents smaller, perhaps more responsive or innova-
tive carriers from participating.
Variations on the same theme are regulations which favor facilities-based pro-
viders over resellers. Many countries that have otherwise committed to liberalize
their telecommunications in the GBT have adopted policies designed to encourage
infrastructure investment. For example, carriers may be required to implement a
certain number of switches before they are permitted to interconnect with the in-
cumbent. These sorts of requirements, while attempting to achieve an arguably
laudable goal, act as a barrier by depriving consumers in these markets of a very
valuable source of supply — resellers.
As experience has shown in this country, resellers continue to play a vital role
in the telecommunications marketplace. There are literally hundreds of these enti-
ties, with their numbers increasing every month. These companies are usually small
by comparison with the giant facilities-based carriers, but they are able to stay
ahead of their much larger competitors by constantly introducing new pricing ar-
rangements, new services, and innovations for consumers.
Another barrier to competition in many countries is the lack of number port-
ability. Number portability is essential in order for competition to develop because
it allows customers to keep their telephone numbers when changing carriers. Where
no number portability exists, residential consumers in particular are much more re-
luctant to shift their business away from the incumbent, even when they are offered
a significant price break.
Even in the business market, the lack of portability acts as a major deterrent to
competition. Businesses must incur significant expenses to reprint stationery and
business cards and to inform customers, suppliers, and others that they have
changed telephone numbers. For example, before portability was implemented in the
domestic 800 service market, some competition did exist. However, soon after the
introduction of portability, overall demand rose and prices dropped.
D. Negotiating Objectives
We urge the USTR to set the following negotiating objectives:
• Update the 1991 Standard Classification System to emphasize services rather
than the technology employed to deliver the services.
• Expand and deepen the commitments of countries that agreed to partial liberal-
ization in the GBT to include full liberalization and adoption of the Reference Paper,
by a date certain in the near future.
• Schedule commitments to full liberalization and adoption of the Reference
Paper, by a date certain in the near future, of countries that are WTO Members
but have not made commitments under the GBT.
• Seek commitments to full liberalization and adoption of the Reference Paper by
countries wishing to accede to the WTO.
IX. Travel and Tourism
A. Benefits of Liberalization
The travel and tourism industry is the word’s largest industry, employing over
230 million people worldwide, and is expected to grow to almost 320 million by
2010. The travel and tourism industry is growing faster than world GDP growth.
Its share of gross domestic product is expected to increase from about 11.6 percent
in 1998 to 12.5 percent by 2010. The travel and tourism industry creates good jobs
93
spanning the spectrum from entry level to executives. It is clearly a driver of eco-
nomic growth in the world. Liberalization of the industry will lead to faster industry
growth, which will not only spur direct growth in the industry, but growth in re-
lated industries such as manufacturing of transportation equipment, and building
and related critical infrastructure development projects. Moreover, the travel and
tourism industry represents sustainable and ecologically friendly development.
B. Sector Status
In general, the tourism and travel related services sector tends not to be heavily
regulated and competition tends to be vigorous. There are, however, some signifi-
cant exceptions to this broad generalization.
C. Classification
This sector includes hospitality, restaurants, travel agencies, tour operators, tour-
ist guides services and other travel related services. The industry has developed
since these classifications were drawn up, and the specific services covered under
these broad categories need to undergo a thorough review and analysis to ensure
that all services that should be covered are included. It should also be clarified that
this sector includes travel reservation services and travel-related financial services,
e.g. travelers checks and certain foreign exchange services, which are distinct from
those covered under the banking, insurance and securities sector. (The tourism and
travel related services sector does not include air or other transportation sectors,
which are covered under the transport services sector.)
D. Barriers
Two of the most prevalent types of barriers fall under the rubrics of competition
and investment, which could be addressed either horizontally or on a sectoral basis.
(Needless to say, this industry, like many others, has substantial investments in
trademarks and intellectual property, and has an interest in the outcomes on these
and other general business concerns.)
Competition
Many countries impose significant restrictions, often only against foreign firms or
enforce them in ways that favor domestic firms, on marketing and promotional ini-
tiatives, including loyalty reward programs.
Investment
One hundred percent foreign ownership is often prohibited, and the form of doing
business is commonly restricted or controlled. In addition, when operating through
a franchise network, repatriation of profits, payment of royalties, and other similar
issues frequently become problematic.
Movement of Personnel
A third horizontal issue is of particular concern to the industry, and that regards
the freedom of movement for business personnel. The ability of travelers to move
freely around the world is the lifeblood of the travel and tourism industry. The in-
dustry has an abiding interest in liberalizing the restrictions, not only on tourists
and the industry’s own management, but generally on businesses’ ability to locate
the proper personnel in the locations where they are most needed.
The other barriers are not covered in the general issues, though some do affect
other sectors, as follows:
Privacy
Many companies in the travel industry maintain records regarding customers’
travel preferences in order to serve particular needs better. Many countries are pro-
posing, or have already enacted, onerous restrictions on the flow of this type of in-
formation. Many countries also require the disclosure of overseas spending by cus-
tomers, thereby discouraging foreign travel by their citizens.
Tourist Financial Services
Many countries proscribe significant restrictions on the provision of financial serv-
ices for travelers. Sale of travelers checks are often restricted to certain limited
types of financial institutions, as are foreign currency exchange services even
though they pose no risk to a country’s financial system. Finally, access to local
ATM networks is occasionally prohibited.
94
Taxes on Overseas Spending
Some countries penalize their citizens when they travel abroad by imposing taxes
on overseas spending, often in ways that unfairly discriminate among payment
products. One large South American country, for example, imposes a 2 percent
transaction tax on credit and charge card spending abroad, but imposes no special
taxes on cash purchases. As a large proportion of spending by international trav-
elers is transacted through credit card payment systems, this tax discourages inter-
national travel and tourism.
E. Negotiating Objectives
The U.S. objective should be the removal of as many of these barriers as possible.
Unfortunately, it is too early in the process to identify firm industry-wide priorities.
Chairman Crane. And next is Mr. Kleckner.
STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN
FARM BUREAU FEDERATION, PARK RIDGE, ILLINOIS
Mr. Kleckner. Thank you, Mr. Chairman and Members of the
Subcommittee. I am Dean Kleckner, and while I office in Park
Ridge, Illinois, I am a north Iowa farmer, raising corn, soybeans
and hogs on that farm, and one of the four ACTPN members sitting
at the table today. Now there are three of us left.
Agriculture is one of the few industries that consistently runs a
trade surplus. The United States along with agriculture must be at
the negotiating table in the next WTO Round with trade negoti-
ating authority to ensure that this trade surplus continues.
U.S. agriculture is now reeling from low commodity prices. Given
an abundant global supply and a stable U.S. population rate, the
job of expanding existing markets and opening new export markets
for agriculture is more important than ever. Agriculture’s long-
standing history of a trade surplus will not continue if agriculture
is relegated to the sidelines as new negotiations commence.
Personally, I am concerned that agriculture will be left behind if
we do not structure the negotiations properly. The next round of
negotiations should encompass all sectors as a comprehensive sin-
gle undertaking. By this we mean all aspects of the negotiations
should be concluded simultaneously in order to get the best results
for all sectors. In other words, as was said in the Uruguay round,
agreeing it should be here, too, nothing is agreed to until every-
thing is agreed to.
I have submitted for the record a copy of the Seattle Round Agri-
culture Committee’s policy objectives for the next round. The Farm
Bureau chairs this coalition, which consists of 80 agriculture orga-
nizations representing producers as we are, also processors and ag-
ribusinesses. U.S. agriculture is united in its views for the next
round through this coalition. The very first principle of this coali-
tion is that of a single undertaking.
The United States will have the greatest success in the next
round of trade talks if negotiations are concluded as a single under-
taking without the possibility of an “early harvest” or provisional
implementation of early agreements. We are very concerned — very
concerned about concluding early results for any sector, recognizing
in doing so will require devoting substantial resources and will
95
likely sidetrack the important structural issues that need to be ad-
dressed in order for this round to be completed in 3 years.
Now, eight quick items. We have set a goal to complete the agri-
culture negotiations by the end of 2002, 3 years. Our producers
need results in a timely manner. Two, we call for the elimination
of export subsidies by all WTO members by a date certain and as
soon as possible. Three, we believe that new negotiations must in-
clude a recommitment to binding agreements to resolve sanitary
and phytosanitary issues based on scientific principles in accord-
ance with the WTO Agreement on Sanitary and Phytosanitary
Measures; that is, the SPS agreement. The provisions of the Uru-
guay round agreement are sound and do not need to be reopened,
the SPS agreement.
Four, the next round should result in tariff equalization and in-
creased market access. By requiring our trading partners to elimi-
nate tariff barriers within specified timeframes, we need to adopt
a framework that was used in the Uruguay round wherein there
are no product or policy exceptions to such tariff reductions. All
WTO member countries should reduce tariffs, both bound and ap-
plied, in a manner that provides commercially meaningful access
on an accelerated basis.
Five, quickly here, regarding state trading enterprises, or STEs,
we must impose disciplines on STEs that distort the flow of trade
in world markets.
Six, and very important, Mr. Pepper mentioned this, but we
must ensure market access for biotechnology products produced
from GMOs, genetically modified organisms. All WTO member
countries should reaffirm the principles of the WTO SPS Agree-
ment, provisions which we believe cover trade in GMOs. And I
might say six “a” here, the United States should not agree to a
Working Group on Bioengineered Products at the WTO. The forma-
tion of such a group will derail the resolution of trade issues con-
cerning bioengineered product policy and not likely result in a con-
sensus approach.
Seven, we must end the use of all nontariff barriers to trade.
And, last, eight, our negotiators must make changes to trading
practices that would facilitate and shorten its dispute resolution
procedures and processes.
In summary, Mr. Chairman, we support liberalization of global
agriculture markets that will result in the true reform of the cur-
rent trading regime and bring about fair trade for our producers.
This is our opportunity to address the trade imbalances that ham-
per our domestic producers from both an import and an export per-
spective. The U.S. must demonstrate leadership in setting the
agenda for this round of trade talks and is submitting proposals for
the structure of the negotiations.
Mr. Chairman, I thank you.
Chairman Crane. Thank you.
[The prepared statement follows:]
Statement of Dean Kleekner, President, Ameriean Farm Bureau
Federation, Park Ridge, Illinois
Mr. Chairman, members of the Committee, I am Dean Kleekner, president of the
American Farm Bureau Federation and a hog, corn and soybean farmer from Iowa.
I appreciate the opportunity to testify before you today regarding negotiating objec-
96
tives for agriculture in the next round of trade talks in the World Trade Organiza-
tion.
The American Farm Bureau is the nation’s largest organization of agricultural
producers. Farm Bureau represents over 4.8 million member families in the United
States and Puerto Rico. Our members produce every commodity grown in America
and depend on access to customers around the world for the sale of over one-third
of our production. Agriculture is one of the few U.S. industries that consistently
runs a trade surplus, posting a positive balance of trade every year since 1960. The
United States along with agriculture, must be at the negotiating table in the next
WTO round in a meaningful way, with trade negotiating authority, to ensure that
this trade surplus continues.
The ability of U.S. agriculture to gain and maintain a share of global markets de-
pends on many factors, including obtaining strong trade agreements that are prop-
erly enforced, enhancing the administration’s ability to negotiate increased market
access for U.S. agriculture and building in the necessary changes to the WTO dis-
pute settlement process to ensure timely resolution of disputes.
When Congress passed the 1996 Freedom to Farm Act, it phased out farm price
supports, making U.S. agriculture more dependent on the world market. American
farmers and ranchers produce an abundant supply of commodities far in excess of
domestic needs and their productivity continues to increase. Exports are agri-
culture’s source of future growth in sales and income.
As you are well aware, U.S. agriculture is reeling from low commodity prices.
Given an abundant domestic supply and a stable U.S. population rate, the job of
expanding existing market access and opening new export markets for agriculture
is more important than ever. Agriculture’s longstanding history of a balance of trade
surplus will not continue if we are relegated to the sidelines as new negotiations
in agriculture commence.
Moreover, global food demand is expanding rapidly and more than 95 percent of
the world’s consumers live outside tJ.S. borders. Despite significant progress in
opening U.S. markets, agriculture remains one of the most protected and subsidized
sectors of the world economy. In addition, U.S. agricultural producers are placed at
a competitive disadvantage due to the growing number of regional trade agreements
among our competitors.
U.S. leadership of the global trade liberalization agenda has paid off for American
agriculture. If the United States now leaves it to others to form new trade pacts
and write future rules for trade, U.S. producers, processors, and exporters will be
severely disadvantaged in the competitive marketplace of the 21st century. We are
counting on this administration and Congress to ensure that U.S. farmers and
ranchers have a significant place at the negotiating table, armed with the tools they
need, including trade negotiating authority.
WTO Ministerial
As you know, the Seattle Ministerial Conference will serve as the kickoff for the
new negotiations on agriculture and other sectors in the WTO. As the host country
for this ministerial, the United States and its trade policies will be in the spotlight.
Given the economic turmoil and technical barriers being experienced in many of our
important export markets, the launching of new negotiations to further open mar-
kets has never been more important.
The United States has an unprecedented opportunity to lead these negotiations
to a successful outcome and should play a central role in influencing the debate
early regarding the structure of the negotiations. Specifically, the administration
should take a stand now on a number of different issues, including what sectors will
be negotiated in this next round and what approach will be used for the negotiations
(formula approach versus request-offer, or some combination thereof). These nego-
tiations are too important to agriculture, and other sectors, to let other WTO mem-
ber countries dictate the negotiating agenda.
Objectives for the Next Round
Higher living standards throughout the world depend upon mutually beneficial
trade among nations. We urge that trade policies be developed that promote the
growth in world trade.
To this end, U.S. negotiators must comprehensively address high tariffs, trade-dis-
torting subsidies, and other restrictive trade practices in the new round of negotia-
tions on agriculture.
The American Farm Bureau Federation supports expediting action on the next
round for agriculture in the WTO. Our market is the most open in the world. We
cannot sit idly by while our competitors trade openly in our market, but deny us
97
access to their markets on equal terms. We must begin the negotiations and con-
clude them as early as possible to put U.S. agricultural producers on a level playing
field with the rest of the world. To this end, we have set a goal to complete the
agricultural negotiations by the end of 2002 to ensure that our producers gain in-
creased market access in a timely manner.
First and foremost, the next round of negotiations should encompass all sectors
as a comprehensive, single undertaking. By this we mean that all aspects of the ne-
gotiation should be concluded simultaneously in order to get the best results for all
sectors. The United States will make the greatest gain in the next round of trade
talks if negotiations are concluded as a single undertaking without the possibility
of an “early harvest” or provisional implementation of early agreements. As you are
aware, this issue has attracted significant attention in recent weeks given the ad-
ministration’s desire to achieve early tariff reductions for the eight Asia Economic
Pacific Cooperation (APEC) sectors. We are very concerned about concluding early
results for any sector recognizing that doing so will require a substantial devotion
of resources to accomplish and will likely sidetrack the important structural issues
that need to be addressed in order for this round to be completed in three years.
Second, we must call for the elimination of export subsidies by all WTO member
countries. Our producers cannot compete against the mountain of spending by our
primary competitors, like the European Union (EU). The EU spends in excess of
eight times the level of domestic and export subsidies as the United States. Data
from the U.S. Department of Agriculture and the European Commission show that
total EU domestic and export subsidy expenditures for 1997 exceeded $46 billion
compared to $5.3 billion spent by the United States. This level of spending distorts
world trade and undermines U.S. producers’ competitiveness in vital export mar-
kets.
Third, we believe that the new negotiations must include a recommitment to bind-
ing agreements to resolve sanitary and phytosanitary issues based on scientific prin-
ciples in accordance with the WTO Agreement on Sanitary and Phytosanitary Meas-
ures (SPS Agreement). The provisions of the Uruguay Round SPS Agreement are
sound and do not need to be reopened. The United States has successfully litigated
several SPS cases that underscore the strength of this agreement. Cases have now
been tried that set precedence in each of the three areas of the SPS Agreement. For
example, the successful U.S. litigation of the EU beef ban strengthens the provisions
regarding human health, the Japan varietal testing case underscores aspects re-
garding plant health, and the Australia salmon case bolsters the animal health text
of the SPS Agreement. Any change to the SPS Agreement would expose the sound
scientific principles now embedded in its provisions — changes that the EU would rel-
ish making to restrict rather than facilitate trade.
Fourth, the next round should result in tariff equalization and increased market
access by requiring U.S. trading partners to eliminate tariff barriers within specified
time frames. Our producers compete openly in their own domestic market with their
foreign competitors, but are shut out of export markets due to prohibitively high tar-
iffs. We need to correct this imbalance for our farmers and ranchers. All WTO mem-
ber countries should reduce tariffs, both bound and applied, in a manner that pro-
vides commercially meaningful access on an accelerated basis.
Fifth, we must impose disciplines on state trading enterprises (STEs) that distort
the flow of trade in world markets. Every effort should be made to craft an agree-
ment that sheds light on the pricing practices of STEs and ends their discriminatory
practices. Our producers have lost too many sales in third country markets due to
the noncompetitive, nontransparent operations of STEs.
Sixth, we must ensure market access for biotechnology products produced from ge-
netically modified organisms (GMOs). Significant delays and a lack of transparency
in the regulatory approval process for GMOs in the EU have heightened the need
for science based, transparent provisions governing bioengineered products. We can-
not continue to be held hostage to the EU’s nontransparent, discriminatory proce-
dures that deny market access for our GMO products. All WTO member countries
should reaffirm the principles of the WTO SPS Agreement, provisions which we be-
lieve cover trade in GMOs. Most importantly, the United States should not agree
to a working group on bioengineered products in the WTO. The formation of such
a group will derail the resolution of trade issues concerning bioengineered products
and will not likely result in a consensus approach.
Next, we must end the use of all nontariff barriers to trade. There are several
practices that have been employed by our trading partners to shut out competition
in their domestic markets. These practices include, but are not limited to, domestic
absorption requirements, discriminatory licensing procedures, price bands, and the
administration of tariff rate quotas that prevent true competition. Provisions to ad-
98
dress these and other nontariff barriers should be written into the new agreement
on agriculture.
Finally, our negotiators must make changes to trading practices that would facili-
tate and shorten dispute resolution procedures and processes. The process for a
WTO dispute settlement case typically runs three years, if the WTO ruling is imple-
mented. We have seen in both the EU banana and EU beef cases that compliance
is not always assured. Our trading partners cannot be allowed to unilaterally weak-
en the very principles that we negotiated in the Uruguay Round Agreement. The
expedited dispute settlement process for perishable agricultural products outlined in
the WTO Dispute Settlement Understanding should be modified to allow the proce-
dure to be used if the aggrieved party requests it. Currently, the WTO requires that
both parties in a case agree to use this procedure. As a result, it has never been
used. This simple change should be enacted promptly. Doing so would address the
fundamental problem of a dispute settlement procedure that requires too much time
and prevents market access for several marketing seasons before a resolution is
reached.
Concerning environment and labor issues in the upcoming trade negotiations, we
believe that such matters should only be addressed in a manner that facilitates
rather than restricts trade. We cannot allow the economic prosperity of our nation,
and that of our agricultural producers, to be used as a weapon for nations that dis-
agree with our values.
In summary, we support liberalization in global agricultural markets that will re-
sult in true reform of the current trading regime and bring about fair trade for our
producers. The United States has a tremendous opportunity before it to shape the
agenda for the next round and should seize this chance to demonstrate to the world
that we are committed to opening new markets for U.S. agriculture. This is our op-
portunity to address the trade imbalances that hamper our domestic producers,
from both an import and export perspective. Given the economic turmoil being expe-
rienced in many of our important export markets, the launching of new negotiations
to further open markets has never been more important.
Seattle Round Agricultural Committee (SRAC) 1999 WTO Policy Statement
The U.S. agricultural and food sector supports the launching of a comprehensive
round of multilateral trade negotiations that includes all goods and services, con-
tinues to reform agricultural and food trade policy, promotes global food security
through open trade, and increases trade liberalization in agriculture and food. Policy
and process objectives should include:
•Conclusion with a single undertaking that encompasses all sectors (i.e., no early
harvest).
•Adoption of the Uruguay Round framework for the 1999 agricultural negotiations
to ensure that there are no product or policy exceptions.
•Establishment of a three-year goal for the conclusion of the negotiations (by De-
cember 2002).
•Elimination of export subsidies and tightening of rules for circumvention of ex-
port subsidies.
•Elimination of nontariff barriers to trade.
•Transitioning countries to provide an increasing portion of total domestic support
for agriculture in a decoupled form, as the United States has already done under
the FAIR Act.
•Commercially meaningful reduction or elimination of tariffs (bound and applied)
and mutual elimination of restrictive tariff barriers on an accelerated basis. In addi-
tion, the administration of tariff-rate quotas (TRQs) must be improved.
•Elimination of State Trading Enterprises (STEs) or the adoption of disciplines
that ensure operational transparency, the end of discriminatory pricing practices,
and competition for STEs.
•Maintaining sound science and risk assessment as the foundation of sanitary and
ph 3 dosanitary measures.
•Ensuring market access for products of biotechnology, with the regulation of
these products based solely on sound science.
•Accelerating resolution of trade disputes and prompt enforcement of panel deci-
sions.
•Providing food security for importing nations by avoiding sanctions on food ex-
ports combined with a WTO commitment not to restrict or prohibit the export of
agricultural products.
•Addressing labor and environment issues in a manner that facilitates rather
than restricts trade.
99
•Establishing WTO rules for developing
tions using objective economic criteria.
Ag Processing Inc.
Agricultural Retailers Association
American Cotton Shippers Association
American Crop Protection Association
American Farm Bureau Federation
American Feed Industry Association
American Potato Trade Alliance
American Soybean Association
American Sugar Alliance
American Vintners Association
Animal Health Institute
Archer Daniels Midland Company
Biotechnology Industry Organization
Bryant Christie Inc.
Bunge Corporation
CF Industries, Inc.
California Table Grape Commission
Cargill, Incorporated
Chicago Board of Trade
Chocolate Manufacturers Association
Coalition for a Competitive Food and
Agricultural System
ConAgra, Inc.
Continental Grain Company
Corn Rehners Association
Distilled Spirits Council of the United
States
Farmland Industries, Inc.
Florida Phosphate Council
Food Distributors International
Association
Gold Kist, Inc.
Grocery Manufacturers of America
Independent Community Bankers of
America
International Dairy Foods Association
Kraft Foods
Louis Dreyfus Corporation
Monsanto Company
National Association of Animal Breeders
National Association of State
Departments of Agriculture
National Association of Wheat Growers
National Barley Growers Association
National Cattlemen’s Beef Association
countries to graduate to full WTO obliga-
National Chicken Council
National Confectioners Association of the
United States
National Corn Growers Association
National Council of Farmer Cooperatives
National Cotton Council of America
National Food Processors Association
National Grain and Feed Association
National Grain Sorghum Producers
Association
National Grain Trade Council
National Grange
National Milk Producers Federation
National Oilseed Processors Association
National Pork Producers Council
National Renderers Association
National Sunflower Association
National Turkey Federation
North American Export Grain
Association
North American Millers’ Association
Northwest Horticultural Council
Pacific Northwest Grain and Feed
Pet Food Institute
Pioneer Hi-Bred International, Inc.
Ralston Purina Company
Snack Food Association
Sunkist Growers
Sweetener Users Association
The Fertilizer Institute
The lAMS Company
Transportation, Elevator, & Grain
Merchants Association
USA Poultry & Egg Export Council
USA Rice Federation
U.S. Apple Association
U.S. Canola Association
U.S. Grains Council
U.S. Dairy Export Council
U.S. Meat Export Federation
U.S. Poultry & Egg Association
U.S. Rice Producers Association
U.S. Wheat Associates, Inc.
United Egg Association
United Egg Producers
Washington State Potato Commission
World Perspectives Inc.
Chairman Crane. Mr. Dillon.
STATEMENT OF JOHN DILLON, CHAIRMAN AND CHIEF EXECU-
TIVE OFFICER, INTERNATIONAL PAPER, PURCHASE, NEW
YORK, ON BEHALF OF THE AMERICAN FOREST & PAPER AS-
SOCIATION
Mr. Dillon. Thank you, Mr. Chairman. I am John Dillon of
International Paper, and I am pleased to be here today rep-
resenting the American Forest and Paper Association.
100
U.S. forest products industry accounts for $230 billion in annual
sales and employs about 1.5 million Americans. Basically, as you
know, wood and paper products are essential elements of our
standard of living and are derived from a renewable resource,
which we are committed to managing on a sustainable basis.
For our industry, the WTO Ministerial represents the last oppor-
tunity to level the competitive playingfield for our products. The
U.S. market has an open door to foreign competitors in forest prod-
ucts, while U.S. producers must scale high tariff walls and other
barriers to compete abroad. Starting with the Uruguay round, we
have sought to level the playingfield through reciprocal trade elimi-
nation agreements. That objective was only partially realized. Con-
tinued disparity in market access combined with foreign capacity
growth and weak demand abroad have resulted in the actual dete-
rioration in the trade balance of our sector since the Uruguay
round.
We are seeing explosive growth in forest products capacity in
emerging economies like Indonesia, China, Korea and Brazil. They
may claim to be developing economies, but the capacity they are
building is world class, and, in fact, is finding its way in a major
way into our markets.
For instance, in 1998, paper imports from Asia increased by 73
percent. In total, foreign imports of paper products increased by
more than $1 billion in 1998, while U.S. exports declined by almost
$350 million. This alarming trend of increase in imports has heen
evident throughout the decade of the nineties.
Turning to wood products, since 1994, U.S. exports of wood prod-
ucts have dropped by 20 percent, while imports have increased by
33 percent. In total, between 1994 and 1998, the deficit in our sec-
tor has jumped from $3 billion to over $9 billion, in excess of a tri-
pling. The significance of these numbers is the effect on jobs. These
jobs are some of the hest paying in our communities. For instance,
papermill jobs pay about $20 an hour, which is $7 an hour more
than other manufacturing jobs. In 1998, a year of record demand
for our products, paper industry employment declined by 18,000
jobs.
Our industry has made substantial capital investments to mod-
ernize our operations and compete on a global scale. At the same
time our relative cost position has changed in part due to public
policy affecting fiber supply, environmental costs and taxes. For ex-
ample, the U.S. tax rate on corporate forestry is 55 percent com-
pared to 22 percent in Finland and 7 percent in Indonesia.
Clearly, the WTO will not change tax or environmental policy,
but it can finish the job we started with the Uruguay round. The
administration has proceeded on Congress’ authorization to accel-
erate and expand reciprocal tariff elimination. Last November, and
again last month, the APEC ministers agreed to work toward an
agreement accelerating tariff reductions by the WTO Ministerial in
November 1999. The accelerated trade liberalization proposal
would eliminate tariffs on paper products between the years 2000
and 2002, and on wood products between 2002 and 2004. An agree-
ment on the ATL package would boost global trade and benefit pro-
ducers and consumers around the world. However, that objective is
threatened by the Japanese Government’s continued refusal to
101
agree to trade elimination on wood products and by European re-
sistance to conclude any agreement before launching a new round
of negotiations.
Immediate action in Seattle is essential. Delaying the results will
mean continued erosion of our competitive position in world mar-
kets. With the APEC economies prepared to lead the way in ad-
vancing the pace of tariff liberalization, an agreement on the ATL
at the outset of the new round would provide important momentum
for further opening global markets. The WTO must demonstrate
that it is capable of eliminating barriers to trade on a continuing
basis and can do so by concluding the ATL agreement in Seattle.
We urge your support and thank you for listening to our stories.
Chairman Crane. Thank you.
[The prepared statement follows:]
Statement of John Dillon, Chairman and Chief Exeeutive Offieer, Inter-
national Paper Purehase, New York, on behalf of the Ameriean Forest &
Paper Assoeiation
Mr. Chairman, Members of the Committee:
I am John Dillon, Chairman and CEO of International Paper, and I am pleased
to be here today representing the American Forest and Paper Association. Inter-
national Paper is the largest forest products company in the world with $24 billion
in annual sales, operations in nearly 50 countries and close to 100,000 employees.
In addition. International Paper owns and manages nearly 7.5 million acres of forest
land in the United States.
The U. S. forest products industry, which accounts for $230 billion in annual sales
and employs 1.5 million American workers, comprises seven percent of manufac-
turing shipments. To put this in perspective, the U.S. forest products industry em-
ploys about as many people as the data processing and computer services industry.
While Internet-based advertising totaled $1.9 billion in 1998, print-based adver-
tising generated $111 billion in revenues. Basically, wood and paper products are
essential elements of our standard of living — from paper for daily information to
textbooks to decorative products; from packaging to keep products safe and prevent
spoilage; and from lumber and panel materials used in over 90 percent of American
homes to wood-based furniture and cabinetry. These products are derived from a
unique renewable resource which the U.S. forest products industry is committed to
managing on a sustainable basis.
For our industry, the World Trade Organization (WTO) Ministerial meeting in Se-
attle represents the most significant, and possibly the last, opportunity to secure our
ability to participate in fast-growing global markets from a U.S. manufacturing
base. For too many years, the U.S. market has provided an open door to our foreign
competitors, while U.S. producers have had to scale high tariff walls and other bar-
riers to compete in foreign markets. Our foreign competitors have used those years
and those barriers to create a substantial global advantage by increasing their pro-
ductive capacity and exploiting our market while denying us equivalent market op-
portunities.
For the last decade, beginning with the Uruguay Round, we have sought to level
the playing field by pursuing a global free trade sector in forest products through
reciprocal tariff elimination agreements. That objective was only partially realized
in the Uruguay Round Agreement, as Japan blocked an agreement in wood prod-
ucts, and Europe delayed the phase-out on paper tariffs to ten years. These actions
provided another decade of protection to some of our strongest competitors in global
markets.
As a consequence, we have actually seen the global trade balance in the forest
products sector decline since the conclusion of the Uruguay Round Agreement. In
total, between 1994 and 1998 the trade deficit in our sector jumped from $3 billion
to $9.4 billion, a tripling in this short time period.
On the solid wood side of the industry, global production of lumber and panel
products grew about 5 percent between 1994 and 1998, while U.S. production in-
creased only about 3 percent. Thus, the U.S. share of global lumber production has
declined by 1-2 percent since 1994. At the same time, U.S. exports of wood products
have dropped from $7.2 billion to $5.8 billion, or a 20 percent decline; whereas im-
ports of lumber and wood products have grown from $10 billion to $13.3 billion, or
a 33 percent increase.
102
On the paper side, global production of paper and paperboard has increased about
12 percent since 1994, while U.S. production has increased just 6 percent. The U.S.
share of world production of paper and paperboard has declined from 30.1 percent
to 28.5 percent. On a tonnage basis, U.S. exports of pulp, paper and paperboard
grew 8.6 percent from 1994-1998, but dropped 9.3 percent in 1997-98, while im-
ports increased 12 percent.
Just as we saw strong growth in European capacity in the early 1990s, we are
now looking at explosive growth in forest products capacity in emerging economies
such as Indonesia, China, Korea, and Brazil. And while these countries may claim
to be developing economies, the capacity they are building is world-class — we are
not talking about backyard paper and saw mills, but some of the largest, state-of-
the-art mills in the world.
The situation has become more acute in the last two years as a consequence of
the Asian financial crisis. As Asian economic growth collapsed, the rapid buildup in
capacity that was anticipated to serve the rapidly growing Asian economies has re-
sulted in increased shipments to the U.S. market. Imports of paper from Indonesia,
for example, increased by 1800 percent during 1998. Imports from all Asian coun-
tries have increased 73 percent. At the same time, the reduction in demand in Asia,
and lack of strong growth in the rest of the world, has resulted in diversions of prod-
ucts from other regions to the U.S. market — European imports are up 12 percent;
Canadian imports are up 5.3 percent. In total, U.S. imports of paper and paperboard
have increased by more than $1 billion in 1998, while U.S. exports have declined
by $335 million.
The result has been a significant erosion in prices and profitability for U.S. pro-
ducers, and consequently a reduction in U.S. production. Since the beginning of
1998, the U.S. forest products industry has indefinitely or permanently shuttered
1.4 million metric tons of market pulp and 2.1 million metric tons of paper and pa-
perboard capacity.
The real significance of these numbers is the effect on U.S. jobs. In 1998, total
paper and allied products industry employment declined by 17,800 jobs, or 2.6% —
the largest single year decline since 1983. These are higher paying jobs than the
manufacturing average and are most often located in rural communities that are
heavily dependent on the forest products industry. At an average wage of $20.41
per hour, paper mill workers earn nearly $7.00 an hour more than all other private
sector production workers, whose average hourly wage is $13.14.
Future growth opportunities for our products are highest in foreign markets
where demand is expected to grow more rapidly than in the more mature markets
in the U.S. and Europe. However, if we are unable to secure a market position in
Asian and Latin American countries in the near future because of prohibitive mar-
ket access barriers, those markets will be locked up by emerging competitors and
our natural competitive advantage in this sector will have been sacrificed to unequal
terms of trade set by governments.
It is for this reason that we have been so insistent on accelerating and expanding
the reciprocal tariff elimination agreement from the Uruguay Round and why we
are so determined to see a global agreement reached at the Seattle Ministerial. Im-
mediate action is essential to the future success and growth of the U.S. forest prod-
ucts industry.
Six years ago. Fortune magazine evaluated U.S. industries on their ability to com-
pete globally and gave only two “A” ratings: pharmaceuticals and forest products.
Today, that competitive edge in the forest products sector is eroding as a con-
sequence of public policy impacts on our domestic industry and because of the rapid
expansion of foreign competitors, often with the active support of their governments.
During the 1980s and early 1990s, our industry made substantial capital invest-
ments to modernize and upgrade our equipment and operations to ensure that we
would be able to compete on a global scale. In fact, in terms of net value of plant
and equipment per dollar of sales, the paper industry is more than twice as capital
intensive as the all-manufacturing average.
However, also during that time, our relative cost position changed, in part due
to public policy actions. The 75 percent reduction in timber from public lands has
resulted in increased fiber costs, which make up 30-70 percent of our production
costs. At the same time, our foreign competitors often enjoy government-supplied
timber concessions at below-market rates, or benefit from export restrictions which
artificially reduce their cost of fiber.
Environmental compliance costs have increased significantly, both for forest man-
agement and for manufacturing processes. Last year, the Environmental Protection
Agency (EPA) imposed the most costly regulation ever on a single industry — the
Cluster rule — which will increase capital costs for the industry by nearly $3 billion.
Costs for International Paper alone will exceed $500 million. Additional regulations
103
which EPA is now considering for our industry could add another $10 billion in cap-
ital costs over the next 10 years. AF&PA estimates that environmental expenses ac-
counted for 13 percent of capital spending in the last decade, and will account for
as much as 28 percent of capital spending in the next five years. Unfortunately, in
many cases these expenditures produce little or no significant environmental im-
provement and certainly do not contribute to increased productivity or production.
In addition, these costs are not shared equally by many of our foreign competitors,
which face neither the scope of direct regulatory costs, nor the strict enforcement
regime that exists in the U.S. We are proud of our environmental record, but there
must be a reasonable balance between environmental costs and benefits, and we
need to ensure that U.S. producers are not left at a competitive disadvantage be-
cause of disparate environmental requirements.
We also face a cost disadvantage as a consequence of tax policy. A recent study
of comparative teix rates revealed that the U.S. forest products industry has the sec-
ond highest effective tax rate on corporate forestry and timber investment when
compared with any of our major foreign competitors: The U.S. tax rate is 55 percent
vs. Japan at 36 percent; Finland at 22 percent; and Indonesia at 7 percent. Simi-
larly, the effective tax rate on paper manufacturing in the U.S., at 62 percent, com-
pares unfavorably to Japan at 57 percent; Finland at 36 percent; and Indonesia at
33 percent. In both Finland and Indonesia, almost all reforestation and silvicultural
costs currently may be deducted. In the U.S., most reforestation costs must be cap-
italized until harvesting begins. The tax bill that the House recently approved will
help somewhat, but what would really help level the competitive field for us would
be a significant reduction in the corporate capital gains rate applied to timber and
a permanent lifting of the cap on the amortization of reforestation expenses.
Of immediate interest to this committee and this hearing is the impact of trade
policies on our industry and the opportunity presented by the upcoming ministerial
to improve our competitive position. With our natural advantages in abundant fiber
supply, developed infrastructure, skilled workforce, capital investments, and world-
scale operations, we should enjoy a comparative, competitive advantage in world
markets for our wood and paper products. However, while the U.S. market has been
open to the rest of the world, the maintenance of foreign barriers to our products
has significantly eroded our competitive position and threatens the future growth
and success of this industry.
In previous trade negotiations, U.S. tariffs on wood and paper products have been
traded away for concessions in other sectors leaving us with a big market open to
foreign competition and little leverage to gain equivalent access to foreign markets.
During the Uruguay Round, we initiated and led the Zero-for-Zero Tariff Initia-
tive, designed to provide comparable global market access opportunities in several
globally competitive sectors. As noted earlier, that initiative was not fully achieved
in our sector: Japan blocked agreement on reciprocal tariff elimination in wood prod-
ucts and Europe delayed achievement of zero tariffs on paper products for 10 years.
Importantly, developing countries did not participate in the Zero-for-Zero Initiative.
These countries represent the most rapidly growing markets for our products and
have become significant competitors in our industry.
The situation we faced then is now compounded. In short, the distortions in mar-
ket access around the world and differences in government policies affecting forest
products industries are leading immediately and directly to tbe transfer of U.S. pro-
duction and jobs to other countries. If this situation is not reversed in the near
term, the opportunity for our industry to export from the U.S. to growing economies
in Asia and Latin America will be lost for good as those markets are claimed by
low-cost, protected competitors.
The Congress has authorized the Administration to continue to pursue accelera-
tion and expansion of reciprocal tariff elimination in the zero-for-zero sectors as a
priority matter. The Administration has worked with our trading partners in APEC
to advance an accelerated tariff liberalization package for 8 sectors — including forest
products — first through the Asia Pacific Economic Cooperation (APEC) forum and
now through the WTO. Last November, and again last month, APEC ministers
agreed to work toward an agreement by the time of the WTO Ministerial in Seattle.
The Accelerated Tariff Liberalization (ATL) proposal for forest products would elimi-
nate tariffs on paper products between 2000 and 2002 and on wood products be-
tween 2002 and 2004, with limited flexibility on end dates and end rates. In addi-
tion to forest products, the ATL package includes fish, chemicals, medical equip-
ment, energy, toys, gems and jewelry, and environmental goods and services.
It is significant that the APEC economies agreed on the importance of advancing
liberalization in these sectors. It is also important to note that China, in the WTO
accession negotiations, would significantly reduce tariffs on paper and wood prod-
104
ucts and, on acceding to the WTO, would participate in a WTO agreement on tariff
elimination.
An agreement in Seattle on the ATL sectors could produce a significant boost to
global trade, benefiting producers and consumers around the world. However, that
objective is threatened by the continued refusal of the Japanese government to
agree to tariff elimination on wood products, and by European resistance to conclude
any sectoral agreement in advance of launching a new round of multilateral trade
negotiations.
Delaying results in our sector until the conclusion of a new round, at best within
three years and likely to be much longer than that, will mean continued erosion of
our competitive position in world markets and continued transfer of forest products
jobs to other countries. This is an unacceptable outcome. It is comparable to allow-
ing a healthy patient with a flesh wound to bleed to death because the doctors can-
not agree on whether to apply a tourniquet or suture the wound.
We cannot allow the Japanese and Europeans to continue to defer results in sec-
tors like forest products, where there is strong global competition. Both Europe and
Japan have well developed forest products industries and world-class production is
being built in emerging countries.
There will be some vocal opposition from groups in Seattle about the impact of
globalization and world trade on people’s lives. We cannot stop globalization of the
world economy; we have to recognize it and adapt to it to survive and prosper. We
can, however, work to ensure that the terms under which globalization occurs are
at least fair for American companies and workers and that domestic and foreign
barriers to production, trade, and economic growth are eliminated.
Artificial barriers that distort trade and economic development stifle not only com-
petition, but also innovation and economically-sustainable growth, and lead to recip-
rocal barriers which further distort and stifle economic development and growth.
Negotiations should be based on a recognition that reciprocal open markets create
economic growth and new market and job opportunities for all participants. That
is the challenge and the opportunity facing the trade ministers in Seattle.
The WTO must demonstrate that it is capable of continuous progress in elimi-
nating barriers to trade. The most tangible demonstration of that capability would
be to conclude an ATL agreement at the Ministerial which would produce imme-
diate benefits for producers and consumers around the world in these eight sectors.
That would serve as a model and provide some important momentum for the launch
of a new round of trade liberalization negotiations.
Conversely, failure to conclude the ATL agreement in Seattle could lead to further
loss of growth opportunities in important sectors of the U.S. economy and further
erosion in public support for efforts to achieve a more open world trading system.
I hope the trade ministers seize this opportunity to demonstrate the vitality and
value of the World Trade Organization as a body which can and does produce mean-
ingful economic results through eliminating trade barriers, beginning with an agree-
ment in Seattle on the Accelerated Tariff Liberalization package.
Chairman Crane. And our last witness, Mr. Van Putten.
STATEMENT OF MARK VAN PUTTEN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, NATIONAL WILDLIFE FEDERATION
Mr. Van Putten. Thank you, Mr. Chairman and Members of the
Subcommittee. I appreciate this opportunity to testify on behalf of
the National Wildlife Federation, America’s largest not-for-profit
conservation advocacy and education organization with over 4 mil-
lion members and supporters in 46 States and territorial affiliates.
For nearly 10 years, NWF has been intimately involved in the
development of U.S. trade policy. This makes sense to our mem-
bers, who are mainstream and main street conservation activists.
They understand the link between sustainable economic develop-
ment and environmental protection.
This hearing marks an important crossroads in America’s trade
history. For too long, trade and investment agreements have been
treated as if they were independent from their impact on the envi-
105
ronment, wildlife and natural resources. There has heen an as-
sumption that more trade is always better, leading to greater
wealth and an improvement in the quality of life for all people.
But we have come to learn that liheralizing trade does not come
without costs to the environment. We now recognize through first-
hand experience that trade rules may restrict our ability to protect
sea turtles and other imperiled species, limit bulk water exports
from the Great Lakes, and provide information to consumers about
the environmental impact of the products they buy.
This need not be so. The National Wildlife Federation believes
that trade liberalization could be a means by which the goals of en-
vironmental protection and sustainable development are advanced,
but this will require a change in the scope and direction of United
States trade policy. Without this change, public confidence in trade
policy will continue to erode.
As host of the WTO Ministerial meeting in November, the United
States has an unprecedented opportunity to demonstrate leader-
ship in reviewing and reforming the international trade regime so
it respects and promotes these core American values. We stand
ready to assist Congress and the administration in developing a ne-
gotiating agenda which fully incorporates environmental priorities
with specific proposals for WTO rule reform and clarification. At
the same time, I must acknowledge the National Wildlife Federa-
tion’s willingness to oppose the next round of WTO negotiations if
protection of the environment and democratic procedural reforms of
the WTO do not emerge as key components of the future trading
system.
The National Wildlife Federation has an agenda for harnessing
trade liberalization in the service of advancing the American values
of environmental protection, natural resource conservation, and
process values such as openness and fairness in decisionmaking. In
my written testimony I describe this agenda in detail, but I would
just like to highlight a few of those points.
First, we must improve the WTO’s deference to national stand-
ards and multilateral environmental agreements. Second, we must
address the WTO prohibition on distinctions in production and
process methods. Third, we must make environmental impact as-
sessments integral to trade negotiations. And fourth, we must re-
form WTO procedures, especially the dispute resolution system con-
cerning transparency and public participation.
As I said, these and other points are fully addressed in my writ-
ten submission, and I welcome any questions you may have on
that.
We appreciate the administration’s recent statements on its
agenda for integrating trade and the environment, and we urge the
United States to move forward and embrace the recommendations
we have made. Unless WTO nations embrace an agenda for reform
to address environmental concerns, they will not earn the public
support necessary for further trade liberalization.
Mr. Chairman and Members of the Subcommittee, for our mem-
bers the question is not whether or not to trade, but how to craft
trade and investment rules that promote a healthier environment.
Trade is not an end in itself. It is a tool to achieve human aspira-
tions, to improve standards of living and to enhance the quality of
106
life. Trade rules are self-defeating if they force us to trade away
those things we value most highly: Clean air, clean water, safe
food, wildlife, and open and living places that give meaning to our
lives. Trade should be an investment in a better way of life, not a
license to degrade those things on which healthy life depends.
Thank you.
Chairman Crane. Thank you, Mr. Van Putten.
[The prepared statement and attachments follow:]
Statement of Mark Van Putten, President and Chief Executive Officer,
National Wildlife Federation
I am Mark Van Putten, President and CEO of the National Wildlife Federation,
the United States’ largest not-for-profit conservation education and advocacy organi-
zation with over four million members and supporters, ten field offices and forty-
six state and territorial affiliates. For nearly ten years, our staff has been involved
in the development of United States trade policy. Our members are America’s main-
stream and main street conservation activists who understand the link between sus-
tainable economic development and environmental protection.
This hearing marks an important cross roads in American history. For years we
have negotiated international trade and investment agreements as if they were
independent from their impact on the wildlife and natural resources on which they
often depend. We have assumed that “increased trade is always better,” because we
believed that more trade lead to greater wealth and an improvement in the quality
of life for all people. To that end. United States trade policy has traditionally been
dedicated to securing greater market access for United States’ goods and services
through the elimination of national policies of our trading partners that stood in the
way of efforts to trade more and more products and services.
In many cases, increased trade is better, especially when we are talking about the
needs of developing countries. Increased access to international markets allows de-
veloping countries to sell their goods and services to a growing global market. But
as we better understand the impact living in a global society has on our efforts to
protect the environment in a global society, we understand that liberalizing trade
does not come without costs to the environment. We now understand that trade lib-
eralization increases the pressure to turn wild spaces into farmland and, in a recent
tragic example, can undermine efforts here at home to protect endangered sea tur-
tles all over the world.
The National Wildlife Federation believes that it is time to change the scope and
direction of United States trade policy. We need a policy that will promote healthy
economies and cleaner environments. Acting as host to the World Trade Organiza-
tion’s Third Ministerial in November, we believe that the United States has an un-
precedented opportunity to demonstrate its leadership on this important matter,
and show the world that economically sound trade policy must respect the environ-
ment and, the communities affected by the trend toward globalization.
The WTO Ministerial represents a critical opportunity to review and reform the
international trade regime so that it respects and promotes the core values of the
American people. We stand prepared to assist Congress and the Administration in
developing a negotiating agenda which fully incorporates environmental priorities
within specific proposals for WTO rule reform and clarification. At the same time,
we must respectfully acknowledge our willingness to oppose the next round of WTO
negotiations if protection of the environment and democratic procedural reform of
the WTO do not emerge as integral components of the future multilateral trading
system.
We acknowledge and appreciate the progress made by the United States in ad-
dressing environmental concerns at the WTO High Level Symposium on Trade and
Environment in March 1999 and in the United States proposals for the Seattle Min-
isterial agenda presented before the WTO General Council in July 1999. We wel-
come the Administration’s attempts to improve transparency and participation of
civil society at the WTO and, to encourage the elimination of environmentally-dam-
aging subsidies in the fisheries sector. We are also moderately encouraged that the
WTO dispute settlement panel jurisprudence and, in particular, the Appellate Body
rulings, have recently demonstrated an improved sensitivity to the merits of envi-
ronmental policy.
Despite the important United States proposals, we must reiterate our view that
the positions articulated by the Administration as part of its Seattle Ministerial
agenda are positive first steps. Clearly, the choice between awaiting improved juris-
prudence and pursuing concrete rule reform is not necessarily an “either/or” propo-
107
sition. If the widespread support of NWF members and the American people for fur-
ther trade liberalization is to be achieved, United States leadership and more
progress needs to be made in implementing the proposed initiatives and in clari-
fying and modifying the current trade rules to adequately reflect the integration of
environmental concerns.
I. The Relationship Between the International Trade Regime and
Environmental Policy
A. Background — The Principles of the GATT! WTO Regime
The core principles of the General Agreement on Tariffs and Trade (GATT 1947) ^
and its recent successor, the World Trade Organization (WTO),^ have important im-
plications for environmental protection. Generally speaking, WTO rights and obliga-
tions impose certain disciplines on its signatory parties — or member nations. The
following principles represent GATT’s core disciplines:
Article I of the 1947 original GATT text establishes the Most-Favored-Nation
principle (MFN). MFN aims to ensure that each member nation grant any privilege
or advantage it provides to a product from one member immediately and uncondi-
tionally to “like products” from, or destined for, all WTO members. MFN effectively
requires all member nations to treat products from all other WTO members in the
same manner.
Article III establishes the National Treatment Principle, which requires members
to treat any imported “like product” in the same manner as they would treat domes-
tic “like products”. GATTAVTO dispute settlement panels have traditionally defined
the term “like product” narrowly so as to prohibit distinctions in products based on
the manner in which they were produced, or process and production methods (PPM).
At its core. National Treatment is designed to prevent the discrimination of im-
ported products in favor of domestic products.
Article XI establishes a prohibition on quantitative restrictions and seeks to pro-
hibit such trade actions as quotas, embargoes, and licensing schemes on imported
or exported products. A WTO member country challenged with violating any of the
above obligations has recourse to the GATT 1947 General Exceptions. Article XX(b)
and (g) are the exceptions most frequently cited in trade disputes that involve the
environment and natural resources.® Article XX also allows exceptions from the
WTO general obligations to, inter alia, protect public morals, distinguish products
manufactured with prison labor, exclude commodity agreements that meet certain
criteria, and meet emergency shortages of supplies.
Thus, if the trade provisions of a WTO member’s environmental policy are chal-
lenged as a violation of its WTO obligations, the defendant country may attempt to
justify the measure as “necessary to protect human, animal or plant life or health”
(Article XX(b)) or, “relating to the conservation of exhaustible natural resources if
such measures are made effective in conjunction with restrictions on domestic pro-
duction or consumption.” (Article XX(g)).
In addition to Article XX, the nexus between trade and the environment is fre-
quently addressed within the context of the WTO Agreements on Technical Barriers
to Trade (TBT Agreement) and the Sanitary and Phytosanitary Agreement (SPS
Agreement)
The TBT Agreement seeks to ensure that the nondiscrimination and national
treatment provisions of the WTO as a whole are specifically applied to the adoption
of technical regulations by members.’^ The TBT Agreement emphasizes deference to
international standards in the creation of regulations governing, among others,
product characteristics, process and production methods, labeling, and packaging.®
1 General Agreement on Tariffs and Trade, Oct. 30 1947, 61 Stat. A3, 55 U.N.T.S. 187 [herein-
after GATT 1947].
® General Agreement on Tariffs and Trade — Multilateral Trade Negotiations (The Uruguay
Round): Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Dec.
15, 1993, Multilateral Trade Negotiations (The Uruguay Round) Doc. MTN/FA, 33 I.L.M. 1
(1994) [hereinafter WTO Final Act].
3 WTO Final Act, Article XX(b), Article XX(g)
'‘Agreement on Technical Barriers to Trade, GATTAVTO (1994). A technical regulation is de-
fined as:
Document which lays down product characteristics or their related processes and production
methods, including the applicable administrative provisions, with which compliance is not man-
datory. It may also include or deal exclusively with terminology, symbols, packaging, marking
or labelling requirements as they apply to a product, process or production method.
5 TBT Agreement, Article 2.
108
The WTO SPS Agreement attempts to prevent non-tariff barriers to trade in the
form of environment and health measures designed “to protect animal or plant life
or health within the territory of the Member” through restrictions on invasive spe-
cies, additives, pesticides, and other contaminants. In similar fashion to the TBT
Agreement, the SPS Agreement places additional disciplines on WTO members so
as to ensure that measures are not to be “maintained without sufficient scientific
evidence,” nor be maintained “if there is another measure, reasonably available. . .
that achieves the appropriate level of protection and is significantly less restrictive
to trade.”®
If a dispute arises, a complaining party may request the appointment of a dispute
panel to settle the disagreement. The panel hearings are between governments and
are generally closed to the public and non-governmental organizations (NGOs).
Panel reports are adopted within sixty days of their issuance unless a member initi-
ates an appeal or it is the consensus of the other members not to adopt the report.
If a member chooses to ignore the recommendations of a panel, the complaining
member may seek compensation in the area of trade directly related to the dispute
or, if necessary may cross-retaliate in another trade sector. As a result, a member
country whose environmental regulation is found by a WTO dispute settlement
panel to be inconsistent with WTO obligations is immediately susceptible to signifi-
cant pressure to either alter the environmental law in domestic administrative proc-
esses or provide compensation to the complaining WTO member.
B. Implications for National and International Environmental Poliey
The GATTAVTO trade principles have direct implications for a host of environ-
mental laws. Any national or multilateral environmental measures attempting to
accomplish their environmental objective that results in the application of trade re-
strictions with disproportionate impacts on different WTO members runs the risk
of being in violation of the MFN principle. The trade provisions of a multilateral
environmental agreement (MEA), the Montreal Protocol on Substances the Deplete
the Ozone Layer, that promote different trade restrictions among WTO members
based on their status as parties or non-parties to the Protocol may violate the MFN
principle. Similarly, an environmental measure that attempts to distinguish prod-
ucts based on the environmental consequences of their production (e.g. tuna caught
in a manner that harms dolphins as opposed to tuna caught without producing dol-
phin mortality) may violate the national treatment principle. Finally, if an environ-
mental regulation restricts the trade in a particular product via a trade ban, the
regulation in question may be declared inconsistent with Article XTs prohibition on
quantitative restrictions. For example, the United States’ trade restrictions on
shrimp products caught in a manner that harms sea turtles were recently found to
be in violation of Article XI by a WTO dilute settlement panel.
In addition to the core principles, WTO members are increasingly demonstrating
a propensity to utilize the TBT and SPS Agreements to impose additional disciplines
on national and international environmental policies. For example, WTO members
continue to explore measures designed to discipline voluntary environmental label-
ing and certification programs by advocating not only adherence to the TBT Agree-
ment but, also a list of additional principles requiring ecolabeling programs to be,
inter alia, “based on sound science” and “no more trade restrictive than necessary”.^
Ecolabeling proponents remain concerned that the new disciplines inherent in the
recent proposals and the principles of the TBT Agreement go well-beyond the re-
quirements of MFN and national treatment obligations and may place WTO dispute
settlement panels in the position of interpreting the substantive merits of individual
and voluntary environmental labeling programs.
Similarly, the SPS Agreement requires national environmental measures to ad-
here to additional trade-based disciplines and allows significant deference to inter-
national standards. As a result, many national environmental and health authori-
ties remain concerned that the SPS Agreement will allow WTO dispute settlement
panels to sit in judgment of societal policy choices such as determinations relating
to appropriate levels of risk and/or may defer to occasionally weaker international
standards in the interest of promoting trade.
As noted earlier, when differences of opinion over national policy and its relation-
ship to trade rules arise, member nations seek a resolution via the new dispute set-
tlement system established in conjunction with the WTO. Thanks in large part to
United States leadership in the post-WW II era, the use of tariffs to impede the flow
of goods around the world has diminished considerably. As a by-product of this suc-
®SPS Agreement, Article 3:2 (para. 6).
^See, e.g., Trade and Environment Bulletin, Committee on Trade and Environment (CTE),
WTO, Press/TE 023, (May 14, 1998).
109
cess in tariff reduction, the WTO dispute settlement system has increasingly been
called upon to confront the trade-distorting effects of non-tariff barriers. Within the
international trade regime, domestic and international environmental regulation is
often suspected, rightly or wrongly, of rising to the level of an actionable non-tariff
barrier to trade.
The WTO Dispute Settlement Understanding encourages members to enter into
informal negotiations in an effort to reach a mutually agreed solution.® If a resolu-
tion of the matter is not forthcoming, a challenging member invoking the dispute
settlement procedures is entitled to a prima facie assumption that the trade provi-
sions of the environmental measure being challenged are inconsistent with the WTO
rules. The burden of proof to rebut the charge is on the defendant member seeking
to implement the environmental regulation.
In response to the preceding trade and environment linkages and in the interest
of forging a new consensus on United States trade policy as we work together to
develop IJnited States negotiating objectives for Seattle, the National Wildlife Fed-
eration proffers the following recommendations as potential objectives for future
United States trade initiatives.
II. Establish Appropriate and Reasonable Limits to the WTO’s Influence on
Legitimate National and International Environmental Measures
A. Improve WTO Deference to National Standards and Multilateral Environmental
Agreements (MEAs)
Trade rules must be crafted so they do not diminish the environmental protections
that nations have provided for their citizens and their natural resources. As trade
negotiations and trade institutions are increasingly faced with the challenge of dis-
tinguishing national standards adopted for legitimate health and environmental
purposes from those regulatory standards enacted with protectionist intent, the
need to ensure appropriate deference to national decisionmakers with environ-
mental expertise acting at the behest of their citizens intensifies.
As the recent WTO dispute settlement panel opinion regarding the United States’
efforts to protect endangered sea turtles and several other environmentally-related
dispute settlement decisions attest, the WTO’s review of the trade-related aspects
of environmental policy tends to expand rapidly into a substantive review, from a
trade perspective, of the overall effectiveness of a chosen environmental policy.®
In addition to endangered sea turtle regulations, the WTO and GATT dispute set-
tlement bodies have recently issued rulings on domestic laws addressing appropriate
levels of protection for growth hormones in beef,^® air quality, and fuel efficiency
standards.!®
1. Sanitary and Phytosanitary Measures
WTO SPS negotiators are charged with the difficult responsibility and challenge
of balancing the right of domestic regulatory authorities to determine their appro-
priate level of risk and the obligation to maintain measures consistent with their
commitments under the WTO SPS Agreement. The next level of SPS negotiations
at Seattle and beyond represent a significant opportunity for the United States and
its fellow WTO partners to absorb the lessons of existing SPS Agreements in the
NAFTA and Uruguay RoundAVTO contexts and to create a much-improved agree-
ment that ensures high levels of environment and health protection while facili-
tating trade.
A failure to seize this opportunity to establish a well-functioning SPS Agreement
will undoubtedly lead to increased challenges to nondiscriminatory national environ-
ment and health protection laws which will in turn result in increased tension and
instability in the international trading regime and an erosion of popular support
within WTO countries for the WTO process. Accordingly, we recommend that the
® Understanding on Rules and Procedures Governing the Settlement of Disputes, WTO (1994).
®See United States — Import Prohibition of Certain Shrimp and Shrimp Products, Final Re-
port, WTO, WT/DS58/R, (April 6, 1998). See also, United States — Restrictions on Imports of
Tuna, GATT Doc. DS29/R (June 1994) (unadopted); United States — Restrictions on Imports of
Tuna, GATT Doc. DS21/R (Sept. 3, 1991) (unadopted), 30 I.L.M. 1594 (1991); Canada — Measures
Affecting Exports of Unprocessed Herring and Salmon, GATT Doc. L/6268, (jATT BISD 98 (35th
Supp. 1988).
!°EC Measures Concerning Meat and Meat Products (Hormones), Final Report, WTO, WT/
DS48/AB/R, (January 16, 1998).
!! United States-Standards for Reformulated and Conventional Gasoline (AB— 1996— 1), (March
4, 1996).
United States — Taxes on Automobiles, GATT Doc. DS 31/R, at 3-4 (Sept. 29, 1994)
(unadopted)
110
WTO negotiators seek to achieve an SPS Agreement consistent with the following
principles:
Burden of Proof
The WTO SPS Agreement should explicitly place the burden of proof in estab-
lishing a violation of the SPS Agreement on the challenging party throughout the
length of a dispute involving a particular country’s environment and health protec-
tion measure;
International Standards as Minimum Levels of Protection and the Precautionary
Principle
The WTO SPS Agreement should explicitly confirm that international standards
are not to be considered maximum levels of protection in situations where a WTO
country seeks to maintain a higher standard than an international standard.
As a result, SPS Agreement negotiators should insist that, at minimum, an ex-
press statement acknowledging that international standards may not be invoked to
weaken higher domestic standards should be inserted into the SPS text. If modest
deference to international standards is to be maintained, deference to relevant inter-
national health and environmental standards and appropriate multilateral environ-
mental agreements (MEAs) should be incorporated into the SPS Agreement. Indeed,
the SPS Agreement should expressly acknowledge the right of WTO members to in-
voke the Precautionary Principle (the right to take action against a potential harm
even if the scientific evidence linking an activity to the harm in question is inconclu-
sive or uncertain) in determining their appropriate levels of risk.
Deference to National Regulatory Authorities
The WTO SPS Agreement must allow for deference to national regulatory authori-
ties in the assessment of risk and the determination of the appropriate level of SPS
protection. As an appropriate starting point in considering modifications to the SPS
Agreement, the United States should seek explicit language in the text of the WTO’s
Sanitary and Phytosanitary Agreement similar to the language contained in the
Uruguay Round Statement of Administrative Action. The United States has stated
that the SPS Agreement’s definition of appropriate level of protection explicitly af-
firms the right of each government to choose its levels of protection, including a
“zero risk” level if it so chooses. A government may establish its level of protection
by any means available under its law, including by referendum. In the end, the
choice of the appropriate level of protection is a societal value judgment. The Agree-
ment imposes no requirement to establish a scientific basis for the chosen level of
protection because the choice is not a scientific judgment.
In addition, trade rules must explicitly ensure that sovereign nations may con-
tinue to adopt and maintain legitimate, nondiscriminatory protective standards for
health, safety, and the environment. President Clinton has stated in an address
marking the 50th Anniversary of the WTO “Enhanced trade can and should en-
hance — not undercut — the protection of the environment. [Ijnternational trade rules
must permit sovereign nations to exercise their right to set protective standards for
health, safety and the environment and biodiversity. Nations have a right to pursue
those protections — even when they are stronger than international norms.”
Accordingly, WTO negotiators should insist that an interpretative statement be
incorporated into the SPS Agreement reflecting the above position so as to provide
clear guidance to WTO dispute panels that any potential SPS Agreement require-
ment of scientific justification must not allow the substitution of a panel’s scientific
judgment for that of domestic regulatory authorities.
2. Allow Explicit Deference to Multilateral Environmental Agreements (MEAs)
The potential conflict between existing WTO trade rules and the use of trade
measures in MEAs has to be addressed. MEAs use trade measures to promote envi-
ronmental cooperation and enforcement through the use of a variety of positive and
negative incentives related directly to the environmental problem at issue, For ex-
ample, MEAs utilize trade provisions to regulate the trade in a “target” product or
substance primarily responsible for the environmental degradation — such as ozone
depleting chemicals or trade in animal parts derived from endangered species.
^^The Uruguay Round Agreements Act, Statement of Administrative Action at 89.
Address By President Clinton to the World Trade Organization, Geneva, Switzerland, May
18, 1998.
^®See generally. General Agreement on Tariffs and Trade, Trade and the Environment (Feb.
12, 1992), 30.
Ill
Frequently, many of the trade provisions in ME As require MEA parties to restrict
trade in an environmentally damaging product with non-parties to the MEA. Under
these circumstances, a non-party to the MEA that is a WTO member may allege
a violation of their WTO MEN rights and obligations as a result of the differential
treatment. In addition, trade restrictions in MEAs that encourage wholesale bans
or embargoes of products may also be deemed inconsistent with Article XI’s prohibi-
tion on quantitative restrictions.
The National Wildlife Federation strongly supports global efforts to negotiate and
implement MEAs. In general, MEAs encourage transparency and nondiscrimination,
and simultaneously discourage alternative unilateral measures that may lead to fur-
ther trade tensions. Traditionally, well-supported MEAs provide certainty for busi-
ness and discourage “free-riders” from attaining competitive advantages over law
abiding competitors. Negative economic consequences for products not related to the
environmental harm at issue are rare and the WTO Secretariat has acknowledged
that “none of the existing MEAs contain provisions for discriminatory trade meas-
ures to be taken against unrelated products in the case of non-participation or defec-
tion.”
The United States needs to demonstrate leadership in working with other WTO
members, MEA parties, and the international environmental NGO community to es-
tablish a framework in which the laudable goals of trade liberalization and multilat-
eral environmental protection may co-exist. We pledge to work with Congress and
the Administration to:
Build on the NAFTA model
The United States’ commitment to multilateral environmental solutions to inter-
national environmental issues as reflected in Article 104 of NAFTA made important
strides towards increased deference for MEAs addressing shared international envi-
ronmental issues such as the trade in endangered species, transboundary hazardous
waste, and ozone depleting chemicals.^'' We urge the United States to consider an
expansion of the list of MEAs eligible to be “grandfathered” into existing trade
agreements and to provide explicit guidance to WTO dispute settlement panels that
trade rules should not inhibit the environmental objectives of MEAs;
Article 104: Relation to Environmental and Conservation Agreements
1. In the event of any inconsistency between this Agreement and the specific trade obligations
set out in:
a) the Convention on International Trade in Endangered Species of Wild Fauna and Flora,
done at Washington, March 3, 1973, as amended June 22, 1979,
b) the Montreal Protocol on Substances that Deplete the Ozone Layer, done at Montreal, Sep-
tember 16, 1987, as amended June 29, 1990,
c) the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes
and Their Disposal, done at Basel, March 22, 1989, on its entry into force for Canada, Mexico
and the United States, or
d) the agreements set out in Annex 104.1,
such obligations shall prevail to the extent of the inconsistency, provided that where a Party
has a choice among equally effective and reasonably available means of complying with such
obligations, the Party chooses the alternative that is the least inconsistent with the other provi-
sions of this Agreement.
2. The Parties may agree in writing to modify Annex 104.1 to include any amendment to an
agreement referred to in paragraph 1, and any other environmental or conservation agreement.
Enhance WTO Deference to Legitimate MEAs
The United States should seek clarification of WTO rules to allow explicit def-
erence to the independent institutions of established environmental expertise on
questions of appropriate environmental policy in the global commons. For example,
the WTO should establish a formal link to the United Nations Environment Pro-
gramme (UNEP) as an appropriate venue for providing initial arbitration and exper-
tise services to the WTO in the face of a dispute involving an MEA and WTO rules.
III. Harnessing Competitive Energy to Work for the Environment
Manufacturers tend to operate using a simple but powerful logic — produce the
highest quality product while minimizing costs and seeking to operate in a multilat-
eral rules-based system that provides as much certainty and clarity in its applicable
rules as possible. The vast majority of businesses abide by the existing rules and,
seek competitive environments where they know their colleagues do the same. Re-
grettably, some businesses try to exploit loopholes in international trade and invest-
16 W.
11 North American Free Trade Agreement (NAFTA), Dec. 17, 992, Can.-Mex.-U.S., 32 I.L.M.
296 and 32 I.L.M. 605.
112
ment rules to cut costs and create competitive advantages. Trade rules that do not
acknowledge limited distinctions in products based on the manner in which they are
produced (PPMs) or fail to aggressively curtail the use of environmentally damaging
subsidies perpetuate an uneven competitive pla 3 dng field. From the perspective of
law-abiding businesses, to ask producers, operating in compliance with domestic en-
vironmental laws, to compete against foreign-based companies that compete by pol-
luting the environment or destro 3 dng natural resources is inadequate trade policy
and is simply not fair.
Trade rules can be written in a way to encourage environmentally responsible be-
havior, and to prohibit businesses from exploiting the loop holes that exist in the
current international trade framework.
The National Wildlife Federation recommends the following:
A. Address the Process and Production Methods (PPMs) Dilemma:
To promote a competitive level playing field. Congress and the Administration
should work diligently to adopt appropriate criteria to ensure that legitimate envi-
ronmental policies regulating production process methods are preserved from chal-
lenge in a trade dispute. Initial criteria should allow WTO members to distinguish
products based on the manner in which they are produced in limited and clearly
defined environmentally-related circumstances. For example, distinctions in prod-
ucts made with environmentally adverse consequences for the global commons (e.g.
products produced with ozone depleting substances) and in measures designed to
protect threatened or endangered species should be deemed consistent with WTO
rules.
B. Eliminate Environmentally Perverse Subsidies and Promote Trade in Environ-
mental Technologies:
Renewed attention and energy must be devoted to delivering eminently achievable
“win-win” solutions in the trade and environment interface. For example, the elimi-
nation of perverse and environmentally damaging subsidies in natural resource sec-
tors such as fisheries and forest products may result in positive gains for both the
environment and trade. We commend the United States for its leadership in seeking
enforcement of current WTO notification requirements and rules governing the
elimination of subsidies in its 1999 WTO Ministerial negotiating agenda. In addi-
tion, the United States deserves credit for its efforts to place the facilitation of trade
in environmental technologies on the Seattle Ministerial agenda. Admittedly, while
the elimination of environmentally-damaging subsidies and improved trade in envi-
ronmental clean technologies is not a panacea to the resolution of all trade and envi-
ronment conflicts, progress in these areas does represent a positive step forward.
C. Conduct Environmental Assessments:
A commitment to sustainability and access to information argue forcefully for the
initiation of comprehensive environmental assessments of natural resource sector
liberalizations in the early stages of the trade negotiating process and upon comple-
tion of trade negotiations. The United States should build on and strive to strength-
en the positive experiences associated with environmental reviews prepared for
NAFTA and the Uruguay Round Agreements establishing the WTO. In addition, the
United States and our OECD trading partners have agreed that “governments
should examine or review trade and environmental policies with potentially signifi-
cant effects on the other policy area early in their development to assess the impli-
cations for the other policy area and to identify alternative policy options for ad-
dressing concerns.”
The National Wildlife Federation stands committed to working with members of
the Committee and the Administration in developing specific and practical environ-
mental assessment proposals. The goal of the assessment(s), and their open public
review and comment process, should be to provide accurate information on the rel-
ative environmental impact of proposed liberalization in a variety of sectors under
negotiation. In instances when a potential environmental harm is identified, the as-
sessment should suggest mitigative measures such as staggered implementation
schedules and/or technical assistance to lessen the impact on the environment.
D. Negotiate Environmentally Responsible Investment Agreements:
Increased foreign investment built on a solid commitment to sustainable develop-
ment can potentially lead to transfers of cleaner environmental technologies and im-
proved capital expenditures in environmental protection infrastructure. At the same
i®OECD Guidelines on Integrating Trade and Environment Policy, OECD, OCDE/GD(93)99,
para. A, B, (June 1993).
113
time, poorly crafted investment rules may exacerbate the exploitation of natural re-
sources, contribute to environmental degradation and place downward pressure on
national environmental laws and regulations through closed dispute settlement
processes. As a result, NWF does not support the negotiation of investment rules
beyond the current Agreement on Trade-Related Investment Measures (TRIMs) as
part of the Seattle WTO Ministerial Agenda. The United States should maintain its
current position of not seeking multilateral investment negotiations within the
WTO. In the alternative, WTO investment negotiations should, at minimum, at-
tempt to achieve the following:
• Seek mandatory, enforceable measures in the trade agreement to prohibit the
lowering of environmental standards to attract investment and an active monitoring
system to ensure compliance;
• Undertake a review of the traditional “investor-to-state” principle found in nu-
merous bilateral investment agreements with an emphasis on its compatibility with
procedural openness, transparency and environmental protection efforts. Recently,
in the NAFTA context, several private investors have attempted to use the investor-
to-state provisions to challenge domestic regulations with potentially detrimental
consequences for environmental laws. Indeed, we understand the NAFTA parties
are presently engaged in such a review and we urge close coordination with WTO
negotiators in this process with increased attention devoted to ensuring greater
safeguards for environment and public participation in a WTO investment frame-
work;
• WTO investment negotiations should include obligations allowing legitimate
measures designed to conserve the environment, natural resources and the pro-
motion of cooperative environmental programs to be maintained.
E. Slow Down Negotiation of the Forest Products Accelerated Tariff Liberalization
(ATL) Initiative Pending the Conclusion of a Comprehensive Environmental Assess-
ment.
The United States has announced, as part of the Seattle Ministerial Agenda, its
intention to pursue accelerated tariff liberalization (“zero for zero” reciprocal tariff
elimination) in the, inter alia, forest products, fisheries’ products, environmental
goods, and chemicals sectors. In the forest products sector, the proposed joint USTR
and CEQ “written analysis” of the forest products ATL presents a significant oppor-
tunity for the United States to pause and assess carefully and thoroughly the envi-
ronmental impact of the current ATL initiative on global forests. We urge the
United States to utilize this analysis to promote an open and frank discussion of
the ATL initiative’s direct effects on such factors as consumer demand and the effi-
cient management of worldwide forest resources. Accordingly, we recommend that
USTR and CEQ work diligently to ensure the ATL initiative properly addresses po-
tential environmental concerns before proceeding at its current rate of negotiation
and implementation.
An enhanced commitment to sustainable development will require a comprehen-
sive assessment of the potential impacts on sustainability of the proposed forest sec-
tor liberalization. We wish to emphasize that NWF has not drawn any premature
conclusions to the ensuing results of a thorough assessment. Clearly, some tariff lib-
eralization will be beneficial to the environment while tariff liberalization in other
areas may produce negative consequences for the environment.
The goal of the assessment should be to identify those liberalizations likely to be
less-harmful and give them a higher priority than areas of liberalization identified
as detrimental to the environment. In instances when an environmental harm is a
likely outcome, longer implementation timetables, technical assistance, the estab-
lishment of preventive and mitigative measures, and proffering reasonable alter-
native actions may merit due consideration by policymakers. An environmental as-
sessment will also strengthen public participation in trade negotiations by making
the best use of NGO and other civil society inputs and experiences involving trade
liberalization impacts in certain natural resource sectors.
In addition to an assessment of the “zero for zero” reciprocal tariff elimination ap-
proach, a comprehensive analysis of the forest products ATL should explore the po-
tential impact of experimenting with other aspects of the traditional tariff system,
including inter aha:
• carefully amending the Harmonized Tariff System (HTS) to better reflect the
sustainable harvesting of natural resource products. The HTS has the potential to
act as an incentive to encourage the production of natural resource products in a
sustainable fashion throughout the United States and the entire world;
• promote increased flexibility in the tariff system to potentially allow for a zero-
tariff model in certain categories of forest products (e.g. finished wood products),
while maintaining capacity to continue moderate tariffs in other categories (e.g. raw.
114
unprocessed logs or wood chips) if they were clearly shown to have adverse environ-
mental and/or economic consequences.
rv. Support Cooperation on Environmental Matters Among Trading Nations
As trade liberalization leads to increased market integration, the opportunities to
foster a meaningful cooperative environmental agenda through parallel environ-
mental institutions multiply. Our own experience working with government officials
in Latin America and elsewhere has helped us understand that it is not improve-
ments in environmental protection per se that governments are reluctant to pursue.
On the contrary, most government officials are trying hard to develop and imple-
ment effective national environmental regimes. What concerns them are two factors:
• In the past, some governments have regarded a number of environmental laws
and regulations as thinly guised protectionism. We recognize improperly crafted en-
vironmental policies can lead to unnecessary trade tensions;
• The fear that, above and beyond trade agreement commitments, they lack the
political will and/or technical resources to fully implement their own environmental
laws and regulations.
A. Promote Environmental Cooperation:
The National Wildlife Federation supports the notion that trade and investment
agreements create unique opportunities to further environmental cooperation among
our trading partners that should not be ignored. The conceptual framework and co-
operative mission of parallel environmental institutions associated with trade liber-
alization merits strong political and technical support in all of the United States’
trade initiatives.
In the NAFTA context, the Commission for Environmental Cooperation (CEC) is
the trinational environmental institution created by the North American Agreement
on Environmental Cooperation (NAAEC) (NAFTA’s “Environmental Side Agree-
ment”) to address continental environmental issues in the United States, Canada,
and Mexico. The CEC attempts to facilitate cooperation and public participation
among the NAFTA parties by addressing regional environmental concerns, helping
to prevent potential trade and environmental conflicts, and promoting effective envi-
ronmental enforcement in each of the NAFTA countries. To date, the CEC has been
particularly effective in encouraging improved working relationships between the
environmental ministers of the NAFTA parties, while at the same time, providing
a valuable forum to address transboundary issues of shared environmental concern
in North America.
The Border Environmental Cooperation Commission (BECC) is the certifying enti-
ty responsible for developing and evaluating border water, wastewater, and munic-
ipal solid waste (MSW) projects. BECC has comprehensive criteria to which projects
must adhere in order to be considered for BECC certification. These include a
project’s economic viability and its sustainable development components. The
NAJDBank, now fully funded with $450 million in equal contributions from the
United States and Mexico, is a binational financial institution that may use its
funds to leverage additional capital but only for those projects certified by the
BECC. 19
The BECC/NADBank have been particularly effective in facilitating the develop-
ment and adoption of sustainability criteria used to evaluate potential environ-
mental infrastructure projects; transparent decision-making processes with public
participation from both nations; and capacity building and technical assistance. De-
spite this progress, several issues which are beyond the scope of this hearing remain
a concern for some border communities seeking environmental infrastructure fund-
ing, including: interest rates on loans are too high for some communities, particu-
larly in Mexico; without a fee-based utility system, Mexican municipalities must pio-
neer rate structures and fee collection; border population growth rates have in-
creased rapidly as project development has lagged behind.
19 Since its inception in 1994, the BECC has certified 26 water and wastewater projects to
date, with 14 projects in U.S. and 12 projects in Mexico. Of those projects, the NADBank has
closed financing packages on six projects and has made recommendations for financing on an-
other 8 projects. Total NADBank financial commitment is $408.4 million (U.S.). Although few
in number, these projects represent an exponential increase in water and wastewater system
construction in the border region, particularly on the Mexican side.
115
V. Trade Negotiations and Trade Institutions Must Become More Open and
Transparent
As trade negotiations and trade institutions increasingly establish the terms of
market integration and their attendant impacts on the environment, the need for
meaningful public participation opportunities correspondingly increases. Public par-
ticipation should be integral to any trade or investment negotiations. Such a linkage
confirms the relationship between open markets and democratic principles, and pro-
vides citizens with the information they need to make sound and informed choices
about policies that affect their future.
The United States has adopted a very positive approach to improving access to
WTO decision makers and, ensuring that people are able to hold the WTO account-
able for its actions. The National Wildlife Federation urges Congress to support this
effort to infuse the WTO with the same democratic rules of accountability enjoyed
by American citizens.
The National Wildlife Federation recommends:
A. Reform WTO Procedures Regarding Transparency and Participation to Ensure the
WTO System Is Held Accountable to Democratic Principles:
While the United States is to be commended for its efforts over the past two years
to increase public participation and transparency in several trade negotiating fora,
including as part of the Administration’s Seattle Ministerial agenda, further
progress is within reach. For example, the United States must work diligently to
increase transparency in individual sectoral WTO negotiating groups in which the
United States actively participates. In the context of the Seattle Ministerial agenda,
the recently proposed rebirth of the Committee on Trade and Environment (CTE),
ostensibly created as a forum to identify and discuss the environmental implications
of issues under negotiation in a new round, must not simply become a “mailbox”
repository of NGO issues with no significant corresponding influence, nor impact on
the negotiating process. Clearly, the CTE’s work program must avoid repeating its
previous mistakes of conducting a one-sided and imbalanced review of the trade im-
plications of environmental policy without addressing adequately the impact of
trade policy on environmental measures. In addition to any proposed new role for
the CTE, the WTO should establish, as a general matter, information disclosure
policies and clear mechanisms for receiving and responding to NGO participation
and comments.
Improved access and accountability are especially important for people from devel-
oping countries, many of whose governments do not have permanent missions lo-
cated in Geneva. Given the informal nature by which the WTO makes its decisions
at present, ensuring that the interests of all people are represented at the WTO
must be integral to the United States objectives for trade liberalization. For most
of the world’s population, the incredible acceleration of the global economy has also
brought accelerated loss of wildlife and wild places. We urge the United States to
devote its energy to ensuring that all future WTO procedures are open and acces-
sible to all people.
Finally, in the interests of promoting a more open and equitable procedure for es-
tablishing and negotiating trade and investment agreements, the National Wildlife
Federation has co-authored a White Paper which proposes a new form of trade nego-
tiating authority.^° We believe that the ideas represented in this White Paper will
stimulate a public debate on how best to empower the United States government
to bring home trade agreements that promote healthy economies and cleaner envi-
ronments.
B. Open the Dispute Resolution Process:
In all trade regime dispute settlement fora, the United States should, at min-
imum, fulfill President Clinton’s commitment at the WTO to open dispute settle-
ment proceedings to public observation and pursue mandatory consideration of ami-
cus briefs from interested NGO parties.
Conclusion
Thank you again for the opportunity to present these views. Let me conclude by
saying that, for the members of the National Wildlife Federation, the question is
not whether to trade, but under what rules do trade and investment serve to pro-
mote a healthier environment. Trade is a tool to achieve human aspirations, to im-
Sierra Club and the National Wildlife Federation, White Paper on Alternative Trade Negoti-
ating Authority.
116
prove standards of living, to enhance the quality of life. Our environment, our wild
places and wild things are part of humanity’s quality of life. Diminish them and you
diminish the human standard of living. Trade rules are self-defeating if they force
us to trade away those things we value most highly — the clean air, the clean water,
the open and living places that give quality to life. Trade should be an investment
in a better way of life, not a license to degrade those things on which a healthy life
depends. Unless WTO member nations embrace the agenda for WTO reform pro-
posed by environmental organizations throughout the world, we believe that they
will not earn the support they need to negotiate agreements that help to convince
people that trade liberalization works for them.
Center for International Environmental Law, National Wildlife Federation
Sierra Club, World Wildlife Fund, Friends of the Earth Natural Resources
Defense Council, Greenpeace USA Defenders of Wildlife, American Lands
Alliance, Consumer’s Choice Council Earthjustice Legal Defense Fund,
Pacific Environment and Resources Center Community Nutrition Insti-
tute, Institute for Agriculture and Trade Policy
Dear Ambassador Esserman and Mr. Robertson:
Our organizations are deeply concerned about the Administration’s development
of positions for the Third Ministerial Conference of the World Trade Organization
scheduled for Seattle this fall. WTO rules and procedures have been used repeatedly
to attack environmental laws that our organizations have worked for decades to cre-
ate, strengthen and protect. Equally important, the continued pressure to expand
trade through broadened and intensified application of trade policy, without an
equal effort to ensure that the right framework of environmental law and policy are
in place, threatens to impede the conservation of our natural resources and the
maintenance and improvement of a healthy environment. Yet while the Administra-
tion has sometimes raised general environmental concerns about trade and trade
rules at the WTO — most recently at the March 1999 high level symposium on trade
and environment in Geneva — it has failed to take the concrete actions needed to ad-
dress those concerns effectively.
As our groups have emphasized in past communications, the Administration can
fulfill President Clinton’s pledge to put a “human face” on the global economy only
if it combines its commitment to liberalizing trade with an equally strong commit-
ment to environmental protection and sustainable development. We appreciate the
Administration’s call to improve public distribution of WTO documents, enhance
public participation in WTO dispute settlement proceedings, and encourage reduc-
tion of fisheries subsidies that distort trade and encourage overfishing. These efforts
fall far short, however, of the comprehensive reforms needed to ensure that the
world trading system does not hinder sustainable development and environmental
protection. For example, we have found unacceptable the Administration’s inflexible
position in recent months that no textual changes to the WTO Agreements are need-
ed, as it indicates a reluctance to deal seriously with environmental concerns.
The WTO Ministerial Conference offers an historic opportunity for the Adminis-
tration to lead the review and reform that the international trade regime needs so
that it will promote, rather than undermine, environmental protection and other
core values of United States citizens. We stand prepared to help the Administration
seize this opportunity by developing an agenda that fully recognizes environmental
priorities, if, however, the Administration misses the chance to put the WTO on a
course toward sustainable development, this will undermine support for subsequent
negotiations at the WTO — and for United States government authority to partici-
pate in those negotiations — and invite united environmental opposition to the re-
sults. To avoid this, the Administration must develop an environmentally beneficial
agenda for the Ministerial Conference, and a comprehensive plan for environmental
review and reform of the WTO, that go well beyond the proposals advanced to date.
We recognize that the trade and environment issues confronting the WTO will not
be resolved at a single ministerial meeting. What we do expect, however, is that the
Administration formulate a plan for achieving solutions, and that it demonstrate a
commitment to that plan through constructive, open engagement with the public,
with Congress, and relevant agencies. Despite the complexity of the details, the out-
line of the plan we need to see has three simple themes, described below. Although
not every one of our organizations endorses every detail in this letter or the accom-
panying attachment, we are united in support of the overarching principles ex-
pressed here. We will evaluate the outcome in Seattle on this basis.
1. Stop WTO Expansion.
The Administration must avoid rushing into more negotiations on liberalization
that would place the environment and environmental laws further at risk. In light
117
of the potential for significant environmental impacts, this is not the time to embark
on further expansion of the WTO’s power or the scope of its rules. Thus, we oppose
the launch of negotiations within the WTO on investment liberalization, government
procurement or “early harvest” of tariff reductions.
We oppose accelerated tariff reduction and other liberalization in selected sectors
pending an open, participatory and balanced assessment that includes formulation
of mitigating measures. Our concern is intensified with respect to environmentally
sensitive natural resource sectors, such as forest and fish products. Forests and fish-
eries are in crisis both nationally and globally. Prioritizing liberalization in these
sectors is reckless, when we know that regulations and incentives for sustainable
harvesting and commerce are grossly inadequate around the world.
Multilateral investment rules beyond the current Agreement on Trade-Related In-
vestment Measures (TRIMs) should not be the subject of negotiations at the WTO.
We are concerned that the United States government may be shifting its position
to support partial negotiations on investment under WTO auspices.
2. Reform WTO Rules and Procedures.
The WTO as it exists today urgently needs reform. The Administration must se-
cure commitment to the reforms needed to ensure that existing WTO procedures
and rules affirm, rather than hinder, environmental protection.
In broad terms, the WTO’s limits of jurisdiction need to be defined more clearly,
so that the WTO stays within its recognized realm of trade policy, and does not
stray into the field of environmental regulation. Equally important, the WTO’s deci-
sion-making must be transparent and must involve public scrutiny and input.
Achieving these goals will require major changes in both the rules and the proce-
dures for formulating, interpreting, applying and enforcing those rules. These
changes must also be reflected in any negotiations that are launched in Seattle.
Substantively, both existing and future WTO rules must be written and inter-
preted so that they accord proper deference to national and international standards
that serve legitimate environmental objectives. Procedurally, the terms of reference
of each WTO working group or institutionalized body must provide for consideration
of significant impacts on environment and sustainable development, and there must
be mechanisms to ensure compliance.
3. Assess Impacts.
The Administration must provide for an assessment of the environmental impacts
of proposed multilateral trade and trade policy. The fundamental question is wheth-
er the framework of laws, policies and institutions is in place to ensure that addi-
tional multilateral steps to liberalize trade will lead to environmentally and socially
beneficial outcomes. If not, then the assessment must formulate needed institu-
tional, legal and policy changes before moving forward with further talks on liberal-
ization.
This assessment process must begin immediately. It must be open and trans-
parent, global in scope, and conducted through a balanced, impartial process. It
should be carried out in cooperation with our trading partners. A forward-looking
review must be complemented by a retrospective review of past and current impacts
of existing policy. The reference point for the assessment must be the procedures
and criteria developed under the National Environmental Policy Act.
The statement attached to this letter provides further details on our organiza-
tions’ bases for our positions and our suggestions for addressing these areas of con-
cern. We appreciate recent overtures from the Administration that indicate open-
ness to a more substantive dialogue, and look forward to the chance to discuss our
positions further with you and your staff.
Sincerely yours,
David R. Downes
Center for International Environ-
mental Law
On behalf of:
Jake Caldwell, National Wildlife Federation
Dan Seligman, Sierra Club
David Schorr, World Wildlife Fund
Andrea Durbin, Friends of the Earth
Justin Ward, Natural Resources Defense Council
Scott Paul, Greenpeace USA
Rina Rodriguez, Defenders of Wildlife and Community Nutrition Institute
Antonia Juhasz, American Lands Alliance
Cameron Griffith, Consumer’s Choice Council
Martin Wagner, Earthjustice Legal Defense Fund
118
Kristin Dawkins, Institute for Agriculture and Trade Policy
Doug Norlen, Pacific Environment and Resources Center
cc: Ambassador Stuart Eizenstat, Under Secretary for Economic and Business Af-
fairs, Department of State
Erank E. Loy, Under Secretary for Global Affairs, Department of State
George T. Frampton, Jr., Acting Chair, Council for Environmental Quality Frederick
Montgomery, Assistant US Trade Representative for Policy Coordination, Chair-
man of Interagency Trade Policy Staff Committee
Attachment
Center for International Environmental Law, National Wildlife Federation
Sierra Club, World Wildlife Fund, Friends of the Earth, Natural Re-
sources Defense Council, Greenpeace USA, Defenders of Wildlife, Amer-
ican Lands Alliance, Consumer’s Choice Council, Earthjustice Legal De-
fense Fund, Pacific Environment and Resources Center, Community Nu-
trition Institute Institute for Agriculture and Trade Policy
The World Trade Organization and Environment Technical Statement by
United States Environmental Organizations
This statement provides further detail on the concerns and recommendations re-
garding environmental issues outlined in the July 16 letter from several United
States environmental groups. ^ Part I details our opposition to further expansion of
the World Trade Organization (WTO) at this time. Part II identifies specific reforms
needed to WTO rules and procedures. Part III outlines procedural and substantive
elements of the environmental assessment of existing and proposed multilateral
trade agreements.
I. No WTO Expansion
The Administration must avoid rushing into more negotiations on liberalization
that would place the environment and environmental laws further at risk. In light
of the potential for significant environmental impacts, this is not the time to embark
on further expansion of the WTO’s power or the scope of its rules. Thus, we oppose
the launch of negotiations within the WTO on investment liberalization, government
procurement or accelerated sectoral liberalization, including “early harvest” of tariff
reductions.
We oppose the Administration’s effort to accelerate liberalization, especially in en-
vironmentally sensitive sectors such as forest products, in the absence of a careful
and public assessment of the potential environmental impacts (see Part III.3 below).
Aiming to reach agreement on further liberalization at the Seattle meeting itself —
as the Administration proposes to do with reduction of tariffs on forest products —
flies directly in the face of the Administration’s commitment to review the environ-
mental impacts of liberalization, because the schedule is too short to do a thorough
assessment of effects and policy alternatives.
As we have repeatedly stated, multilateral investment rules beyond the current
Agreement on Trade-Related Investment Measures (TRIMs) should not be the sub-
ject of negotiations at the WTO. Our objections to an investment agreement in the
WTO go beyond the issues of establishing rights to sue for lost profits and investor-
to-state dispute resolution. We are also concerned that enforceable rights to national
treatment and most favored nation status could pry open environmentally sensitive
sectors in markets where regulatory frameworks are inadequate to manage the in-
creased environmental pressures that would result. If unaccompanied by strong
frameworks of environmental and labor rights, application of the principles of na-
tional treatment and most favoured nation could also increase “industrial flight” by
companies seeking to avoid costs of compliance with labor and environmental re-
quirements.
In light of these objections, we are concerned that the Administration seems to
be considering support for partial negotiations under WTO auspices. Prior to the ne-
gotiation of any investment rules in any forum, an over-arching international frame-
work is needed to ensure that international investments promote sustainable devel-
opment consistent with the needs of host countries and to guarantee that the envi-
^ Several of our groups have elaborated our concerns in detail in a October 16, 1998 response
to the USTR’s Federal Register request for input regarding US preparations for the Seattle min-
isterial, as well as in the Transatlantic Environmental Dialogue statement delivered to govern-
ments at the recent 0-8 summit. The comments in this document are intended to summarize
and complement these earlier statements and express the collective views of our respective orga-
nizations; however, not every signatory necessarily subscribes to the details of each formulation.
119
ronment is protected. The development of such a framework and any subsequent in-
vestment agreement should take place within the United Nations system. Any such
agreement must include investor obligations with respect to environmental and com-
munity protection.
II. Reform WTO Rules and Procedures
In its Communiqué from Cologne in June, the G-8 stated that “environ-
mental consideration should be taken fully into account in the upcoming round of
WTO negotiations.” We are pleased to hear the United States join other industri-
alized countries in this ambitious commitment. Unfortunately, the United States’
proposals to date have been entirely inadequate to the task. To make significant
progress, the Administration will need to make positive proposals on both sub-
stantive and procedural rules, including existing rules of the WTO as well as the
terms of reference for any further negotiations launched at Seattle. The Administra-
tion will need to make a clear political statement that affirms environmental values
and define a clear process involving the right mix of agencies and other partners
for achieving progress on a range of issues.
Substantively, the Administration will need to take action to ensure that the
scope of WTO rules is limited to trade policy and does not intrude into matters that
come under environmental law and policy. WTO rules must provide for deference
to international and national environmental standards (Part II. 1), and protect the
consumer’s right to know (Part II. 2). At the same time, WTO rules can and should
be applied so that they encourage the elimination of environmentally damaging sub-
sidies that also distort trade (Part II.3). Procedurally, the Administration must take
steps to ensure that all WTO forums take environmental implications of their work
into account (II.4), and that their operations become transparent and accountable
(II.5).
1. WTO Deference To International And National Environmental Standards And In-
stitutions
WTO rules need to be reformed so that they stay within the bounds of trade policy
and do not intrude into areas within the jurisdiction of environmental institutions
and regulations. We are pleased to learn that the Administration now seems to
agree that ad hoc dispute settlement decisions alone are not a solution to the impact
that WTO rules as currently interpreted may have on measures to protect the envi-
ronment. United States leadership of a multilateral approach to a number of issues
is needed to ensure that WTO forums — including the Dispute Settlement Body — and
WTO rules consistently defer to regulations and other measures adopted by inter-
national and national institutions, including measures based on the precautionary
principle.
In the absence of such consistency, there is a serious risk that these institutions
will be impeded from pursuing legitimate environmental objectives through negative
interpretations advanced by trade policy-makers, ad hoc challenges, and the threat
of adverse decisions in WTO dispute settlement. Of particular concern are the
GATT, the TBT Agreement and the SPS Agreement; also relevant are the TRIPS
Agreement as well as agreements on subsidies and agriculture.
Seattle is a critical opportunity for the United States to send a clear signal that
trade policy must be developed and applied consistently with environmental prin-
ciples, and to define a process and terms of reference for achieving agreement on
how to ensure that WTO rules do not interfere with environmental measures. That
process should aim at the following specific outcomes.
a. Burden and Standard of Proof. Ensuring that the complaining party in a WTO
dispute settlement proceeding has the burden to show the lack of an adequate basis
for challenged local or national environmental and health regulations, and that
WTO decision-makers employ a deferential standard of review, perhaps along the
lines of Article 17.6 of the Anti-Dumping Agreement.
b. SPS. Ensuring that the provisions of the SPS Agreement:
i. Do not interfere with the right of national governments to develop and enforce
high environment and health standards at the level they deem appropriate;
ii. Fully recognize the precautionary principle;
iii. Acknowledge clearly that international standards establish minimum, not max-
imum standards for the levels of environmental and health protection set by
WTO Members.
c. Acknowledge Multilateral Environmental Agreements (MEAs) in WTO Rules.
Consistent with the recent G-8 Cologne Communique, there must be an affirmation
that trade-related environmental measures (TREMs) authorized or required under
multilateral environmental agreements or internationally recognized environmental
120
principles are consistent with WTO rules, including Article XX of the GATT, the
TBT Agreement and the SPS Agreement. Criteria should be defined indicating to
the WTO how to recognize the types of agreements or principles that fit within the
MEA category. Contrary to USTR’s suggestion in the July 2 briefing, the concept
is not to establish criteria for evaluating whether an MEA measure is legitimate.
Rather, such measures will be deemed legitimate by virtue of their adoption under
an MEA.
d. Build Effectiveness of MEAs including Trade-Related Measures. The Adminis-
tration needs to make it a positive priority to build effectiveness of MEAs. Where
trade-related measures are appropriate means for addressing the environmental
problem, the Administration should support their use. A WTO decision to defer to
MEAs will do little good if MEAs are written to include “carve-outs” that ensure
that WTO rules prevail over MEA obligations. Disputes over the implementation of
MEAs should be resolved by MEAs, not by the WTO. Thus, we are also seeking a
commitment from the Administration not to advocate the inclusion of “savings
clauses” in future MEAs. The Administration should also work with other countries
through appropriate environmental institutions such as the United Nations Envi-
ronment Programme (UNEP) to develop principles of trade policy to which nego-
tiators of MEAs can refer during negotiations.
e. Production or Processing Methods (PPMs). Ensuring that distinctions between
products based upon PPMs related to environment, human rights and internation-
ally recognized labor standards are recognized as legitimate measures for promoting
sustainable commerce that are consistent with WTO rules.
f. Procurement. A clarification or amendment to the Agreement on Government
Procurement ensuring that it recognizes the right of governments to use social and
environmental criteria in making purchasing decisions. Several of our organizations
provided further suggestions on this topic in comments submitted to USTR by the
Consumer Choice Coalition in January.
g. UNEP and other Environmental Institutions. Adoption of cooperative agree-
ments between WTO and international environmental institutions, including UNEP,
by which the WTO defers to the role of appropriate institutions in addressing envi-
ronmental aspects of international decision-making. Specifically, institutions such as
UNEP and the secretariats of relevant MEAs should have a role in the settlement
of environment-related disputes under the Dispute Settlement Understanding (DSU)
as well as the definition of key international environmental principles such as the
precautionary principle. Deference to such outside expertise is necessary in light of
the specialized nature of WTO as a trade policy institution with trade expertise.
We will be happy to discuss the precise legal form that these steps might take
at the appropriate time. For instance, a clarification could involve language in a
statement adopted by a WTO Ministerial Conference or the WTO General Council,
an agreed-upon interpretation formally adopted by the General Council, or an
amendment to the text of the relevant agreement.
As a general matter, we would like to emphasize that the use of trade measures
that affect developing countries to accomplish environmental goals should be accom-
panied by assistance to those countries to help them achieve those goals. This is
consistent with the Rio bargain that developed countries would assist developing
countries in raising environmental standards and combating environmental prob-
lems, so that all could share in sustainable development and an improved global en-
vironment. The merit of this approach was recognized in the Appellate Body’s
ShrimpATurtle decision. Unfortunately, developed countries have failed to carry out
their end of the bargain, with foreign assistance budgets declining, and debt relief
proposals still inadequate. A renewed political commitment from the United States
and other industrialized countries would contribute significantly to multilateral
agreement on the program outlined here, and would offer long term payoffs for the
United States economy and environment.
2. Protection of the Consumer’s Right To Know
Markets can allocate resources properly only if consumers have the necessary in-
formation to make informed decisions. Unfortunately, some WTO Members — includ-
ing the United States government itself — have advanced interpretations of WTO
rules that threaten to restrict the power of governments and private organizations
to provide consumers with information they want about the environmental and
health aspects of products and their production. We urge the United States to work
with other WTO Members to launch a process at Seattle that leads toward the fol-
lowing outcomes:
a. Ensuring that the WTO Agreement on Technical Barriers to Trade (TBT) pre-
serves the ability of governments and private organizations to protect the con-
121
Burner’s right-to-know and to promote sustainable consumption through open and
transparent labeling programs, including genetically modified food;
b. Ensuring that the TBT Agreement recognizes the legitimacy of regulations and
standards that distinguish between products based on the environmental con-
sequences of their manufacture, use and disposal; and
c. Ensuring that the TBT rules do not conflict with speech protected under the
U.S. Constitution, including third-party certified private labeling programs.
As with the proposals in Part II. 1 above, we are open to further discussion about
the precise legal form that these assurances should take. Generally, however, the
principle is that the WTO must recognize that the TBT Agreement effectively in-
cludes an exception along the lines of Article XX, to the extent it applies to
ecolabeling.
3. Eliminate Environmentally Damaging Subsidies
We welcome and support the Administration’s willingness to push for the elimi-
nation of fishery subsidies that have contributed to the current global fisheries cri-
sis. The Seattle ministerial should unambiguously place the fishery subsidies issue
on the negotiating agenda, and should do so in the context of an open interdiscipli-
nary and inter-organizational procedure that includes other institutions with rel-
evant and needed expertise alongside the WTO. We urge the United States to push
for a similar review of other environmentally damaging subsidies, such as those for
forestry, fossil fuels and nuclear energy. At the same time, WTO Members must en-
sure that WTO rules allow governments to craft measures that reward the social
and environmental values conferred by certain activities, such as adoption of envi-
ronmentally responsible technologies, artisanal fishing and development of renew-
able sources of energy. The ability of the WTO to play a constructive role on sub-
sidies will be a significant test of the organization’s ability to produce the oft-prom-
ised “win-win” outcomes for trade and the environment.
4. Recognizing Environmental Aspects of WTO Decision-Making
Another key question is how to reform the procedures and institutions of the WTO
so that decision-making takes into account its environmental implications. The
United States proposes to use the Committee on Trade and Environment (GTE) on
a “rolling basis” and in an advisory capacity to address the environmental aspects
of WTO decisions. But compartmentalizing environment in the GTE has not worked
in the past and will not work in the future. The Administration has offered no con-
crete steps that would effectively link the GTE to the real decision-making forums
at the WTO.
In our view, much more is needed to ensure that the WTO takes environment into
account in its decision-making. As a general matter, all relevant WTO bodies — in-
cluding councils, committees, and working groups — must include reference to envi-
ronmental protection and sustainable development among their objectives or terms
of reference, consistent with the preamble of the WTO Agreement itself.
The WTO will also have to adopt procedures that ensure that these forums take
these objectives seriously. For instance, each forum could periodically consult with
international environmental institutions with relevant expertise, report on the envi-
ronmental implications of their work, and make recommendations on how to address
environmental impacts of the trade policies with which they are concerned. The
CTE might have a role through review and comment on that report. Another option
is for the WTO’s Director General to present a review of the WTO’s record on envi-
ronment and sustainable development in a section of the annual report. The United
States itself could do a better job of integrating environment by including represent-
atives from relevant agencies such as the EPA on delegations when forums such as
the SPS or TBT Committees discuss environment-related issues.
5. Improved Transparency, Public Participation And Accountability At The WTO
We very much appreciate the efforts made by the Administration to advance
democratic reform of the WTO. We ask that the Administration continue to include
increased transparency, participation and accountability as a priority on its negoti-
ating agenda in Seattle. However, effective achievement in this area will require
more actions in addition to broader and faster access to working documents and con-
sideration of NGO submissions in dispute settlement. It will also require, at a min-
imum:
a. opening of dispute settlement and appellate body proceedings to public observa-
tion;
b. NGO participation in discussions of environment-related issues by other WTO
decision-making forums, such as the SPS Committee, the TBT Committee, the
122
TRIPS Council, the Agriculture Committee, the CTE, and relevant negotiating
groups; and
c. the development of a consultative process between the WTO, NGOs, member
governments and businesses.
We recognize the validity of concerns raised by developing countries that they
may have fewer resources than do some NGOs. The United States and other devel-
oped countries should support fuller participation by poorer WTO Members, for in-
stance through financial and technical assistance.
A first step towards improved transparency of the WTO and trade policy must
begin at home. We have indicated our willingness to work with the Administration
to provide input into the negotiating agenda, yet little information and no docu-
ments have been shared with the NGO community as the Administration prepares
its position for the WTO Ministerial. Only at the July 2 hriefing did we hear any
degree of detail about the Administration’s proposed positions. We urge the Admin-
istration to be more transparent, to share information and documents, to engage the
NGO community in a constructive dialogue, and to ensure balanced representation
on advisory committees dealing with trade issues that have environmental implica-
tions consistent with the Federal Advisory Committee Act. Furthermore, we reit-
erate our request that the United States include NGOs on its delegation to the WTO
Ministerial meeting, especially since other governments, such as Denmark, have al-
ready done so.
III. Environmental Assessments of Current and Proposed Trade Policies
We are pleased that President Clinton has committed the federal government to
conducting an environmental review of the next round of talks at the WTO. How-
ever, the Administration needs to make significant progress in this area. We are
concerned about the adequacy of the process and criteria for such an assessment.
We believe that the assessment should include a review of both past and current
impacts of existing trade policies on the environment and on environmental law and
policy, a similar review of foreseeable impacts of proposals for negotiations, and con-
sideration of policy alternatives. We remain very concerned about the conduct of as-
sessments of proposed tariff reductions in environmentally sensitive sectors. Finally,
we have concerns about certain process issues, including the roles of relevant agen-
cies and cooperation with other governments.
1. Procedures and Criteria for Assessment
We are concerned that the Administration has yet to suggest any procedures or
criteria for the assessment, with Seattle less than six months away. In our view,
there are some clear principles with which this assessment must comply. Many of
these principles are found in the National Environmental Policy Act (NEPA). The
starting point for this assessment must be NEPA’s mandated procedures and meth-
odologies, as elaborated through regulations of the Council on Environmental Qual-
ity, and enriched through decades of federal agency experience with implementa-
tion.
At a minimum, the assessment must he comprehensive in scope, covering all Ad-
ministration proposals for modifying or adding to existing trade policies embodied
in the WTO Agreements. The assessment should be framed in terms of two basic
questions. Is the framework of laws, policies and institutions in place to ensure that
additional multilateral steps to liberalize trade will lead to environmentally and so-
cially beneficial outcomes? If it is not, then what institutional, legal and policy
changes must we make before we move forward with further liberalization?
The assessment must involve the full participation of civil society. In light of the
short time remaining before Seattle, the assessment procedure must begin imme-
diately. It must consider reasonably foreseeable impacts on a global scale. It must
continue until the conclusion of any new negotiating round, taking into account new
knowledge as it accumulates, as well as evolving trade policy positions. It must
identify areas in which existing WTO agreements and new negotiations have (or will
have) significant environmental effects, and evaluate policy alternatives and mitiga-
tion measures, including reforms of existing agreements and modifications of pro-
posed ones including the no-action alternative. And it must integrate social and de-
velopment concerns.
To ensure that the results are balanced and objective, the process should be over-
seen by the CEQ and conducted with the full and equal participation of affected fed-
eral agencies, state and local governments, and interested members of the public.
Finally, we urge the Administration to take the lead in facilitating an assessment
at the multilateral level by a balanced panel of experts drawn from the WTO Secre-
123
tariat, international institutions with environmental and other relevant expertise,
the scientific community, and the public.
2. Assessments of Existing Trade Policies
A forward-looking assessment must be complemented by consideration of lessons
learned. To date, unfortunately, governmental consideration of environmental im-
pacts of trade policy have been inadequate. As a result, we urgently need to gain
a better understanding of the impacts of past trade policies. Thus, the Administra-
tion should also conduct an assessment of the environmental impacts of the WTO
Agreements adopted in the Uruguay Round, carried out consistent with the prin-
ciples we have outlined for conducting an assessment.
This review should cover all relevant WTO Agreements, such as the General
Agreement on Tariffs and Trade (GATT), the Agreement on the Application of Sani-
tary and Ph 3 dosanitary Measures (SPS), the Agreement on Technical Barriers to
Trade, the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS), and agreements on subsidies and agriculture. In relation to the TRIPS
Agreement, we are concerned that the expanded scope and enforcement of intellec-
tual property rights required under the WTO TRIPS Agreement may affect the
transfer of technology required under multilateral environmental agreements
(MEAs), the rights of farmers and indigenous peoples, and the equitable distribution
of benefits required under the Biodiversity Convention.
3. Assessment of Proposals for Accelerated Sectoral Liberalization
Beginning in the context of Asia-Pacific Economic Cooperation (APEC), and more
recently in the WTO, the Administration has proposed accelerated reduction of tar-
iffs, accompanied by examination of non-tariff measures, of a number of sectors, in-
cluding environmentally sensitive sectors such as energy, chemicals, fish and forest
products. In light of the potential environmental impacts, we urge the Administra-
tion to assess carefully the environmental effects of accelerated liberalization in all
sectors, and to define and implement policy measures to maximize environmental
benefits and mitigate harmful impacts. The United States should not push for accel-
erated liberalization until full environmental assessments have been conducted — of
the proposals for both tariff and non-tariff measures — along the lines discussed in
this letter. In light of the severe threats confronting forests and fisheries, and the
demonstrably inadequate national and international frameworks for conserving
them, this approach is particularly important with respect to the fish and forest
product sectors.
We appreciate the step in the right direction represented by the joint analysis of
the economic and environmental effects of the forest product initiative to be con-
ducted by CEQ and USTR. We are skeptical, however, whether the review as de-
fined in the June 25, 1999 Federal Register notice will be an adequate basis for
sound policy making. Even if it is, we are equally concerned that the review’s re-
sults will not be taken into account in the ultimate decision. Thus, we call on the
Administration to explain on the record the environmental basis for whatever policy
decision it takes. As currently proposed, the review does not reflect key principles
of NEPA. For instance, the Federal Register notice allows only 30 days for the pub-
lic to provide input, and it is unclear whether there will be any other opportunities
for public participation.
4. Assessment of the Built-In Agenda
Services. We have concerns that negotiations on services could have some of the
same far-reaching implications for domestic environmental and health regulation as
would investment liberalization. Services, like investment, involve activities within
a country’s territory that relate to a host of regulatory functions performed by fed-
eral, state and local authorities. When it comes to trade liberalization, services, like
investment, raise a host of concerns about community values, regulation and sov-
ereignty that are not so directly posed by goods. We urge the Administration to as-
sess environmental and social implications as it develops its positions.
Agriculture. The United States has called on WTO members to carry forward with
agricultural negotiations with the objectives of gaining “further deep reductions in
support and protection, while encouraging non-trade distorting approaches for sup-
porting farmers and the rural sector.” We share the Administration’s desire to re-
form policies and programs that encourage environmentally damaging expansion
and intensification of production. At the same time, government agricultural policy
can and must reflect the multiple environmental and social functions that agri-
culture plays. Support for environmentally responsible agriculture can help level the
playing field for farmers who take responsibility for the impacts that production has
on the environment of their neighbors, and at the same time have to compete with
124
producers that externalize environmental costs onto society. Government policy also
should take into account the social values that independent farmers provide to com-
munities.
We urge the Administration to make an effort to ensure that the United States
approach to agriculture at the WTO strikes a better balance among these policy ob-
jectives than in the past. The United States continues to maintain direct and indi-
rect subsidies and protections that distort agricultural markets and threaten our en-
vironment, such as below-market pricing for water from government-funded projects
and for grazing on public lands. The Administration should carry out a thorough
review and restructuring of these policies and programs.
The agricultural negotiations on the built-in agenda will offer governments a
chance to develop a multilateral understanding of which policies and programs
should be reduced, and which should be permitted, on environmental and social
grounds. The assessment we are calling for will provide an opportunity for this.
Governments should also explore how to help developing countries implement such
support, whether through multilateral financial and technical assistance or through
some system of preferences. We urge the Administration to provide leadership on
the issue of food security in these talks. Governments must consider the impacts
that dumping of food exports have on the productive capacity of countries whose
populations suffer from chronic hunger, and take this into account in defining rel-
evant trade policies.
Submitted by:
David R. Downes
Stephen Porter
Center for International Environ-
mental Law
On behalf of:
Jake Caldwell
National Wildlife Federation
Dan Seligman
Sierra Club
David Schorr
World Wildlife Fund
Andrea Durbin
Friends of the Earth
Justin Ward
Natural Resources Defense Council
Scott Paul
Greenpeace USA
Rina Rodriguez
Defenders of Wildlife and Commu-
nity Nutrition Institute
Antonia Juhasz
American Lands Alliance
Cameron Griffith
Consumer’s Choice Council
Martin Wagner
Earthjustice Legal Defense Fund
Kristin Dawkins
Institute for Agriculture and Trade
Policy
Doug Norlen
Pacific Environment and Resources
Center
Chairman Crane. Mr. Kleckner, is there room for a compromise
between industry and service interests who advocate early harvests
of trade liberalization measures and agriculture groups like the
Farm Bureau who insist on the need for a single undertaking?
Mr. Kleckner. Good question, Mr. Chairman. We need to keep
talking about it. I talked to Sue Esserman during the break today
when you went back to vote, and I talked to Charlene Barshefsky
125
yesterday by telephone, and, John, you and I visited briefly early.
We have to keep talking about that to see if there can be a meeting
of the minds.
I just believe that strongly, though, that if we solve some of the
problems and leave the tough ones like agriculture to last, it is
going to be very, very tough to get it done there. And that is not
a new position for me or for us in the Farm Bureau. In Belgium,
Mr. Chairman, in Brussels in 1990, when this Uruguay round was
supposed to end, I chaired the American delegation of all segments
that were there. When it looked as though agriculture was going
to be able to get theirs done first, and I said to my cohorts — they
were not there in person, but their companies were — that I did not
favor that because I didn’t think that they would get what they
wanted at the end of the day if we got agriculture solved first.
In the end it did not work that way, but we are all in it together,
or we are not in it at all, it seems to me. I am willingly to talk
to John and to the other ones, including Charlene and Sue
Esserman, to see if there is somewhere that we could work it out,
though.
Chairman Crane. Have you got anything to add to that, Mr. Dil-
lon?
Mr. Dillon. I agree with Dean. Someplace there needs to be a
coming together. I would only point out that part of the difference
here is the issue on forestry and paper is old business that is car-
ried over from the Uruguay round, and there were agreements on
the part — or direction on the part of the Congress to the adminis-
tration to move forward on those agreements in the zero-for-zero
sectors from the Uruguay round and to do so, before the next
round.
On the other hand, these are tough issues, and if we are not to-
gether on them, the Japanese and the Europeans are going to look
for any crack that they can find. And so I think, as Susan has said
and as Dean said, there has got to be a way here that we can meet
everybody’s objectives and come out of this not with a split in our
ranks, but a position that we can go forward on.
Chairman Crane. Mr. Micek, I am intrigued by the broad coali-
tion that you have put together in support of the food chain pro-
posal which spans manufacturing and services in addition to agri-
cultural interests. Is the proposal apt to appeal to lesser developed
countries?
Mr. Micek. Well, as a matter of fact, the proposal that we are
advocating really is an extension of the open food system that is
being advocated in APEC member countries. The open food system
really is about bringing more and better food to more people at af-
fordable prices. To do this, one of the key things we need to do is
to deal with the issue of food security. If we can do that, we can
deal with some of the issues that have been talked about, about
some of the environmental concerns.
For example, there is land in China that is being farmed agri-
culturally that should not be farmed, but one of the key reasons it
is farmed today is because the Chinese are on a policy of 100 per-
cent self-sufficiency. And if we can deal with some of these difficult
issues, I think we can also find a way to deal with some of the en-
vironmental problems we have.
126
Chairman Crane. Thank you.
Mr. Van Putten, what types of improvements in the WTO’s insti-
tutional operations are needed to ensure more transparency and
accountability?
Mr. Van Putten. Well, Mr. Chairman, we think the types of im-
provements include access to the decisionmaking panels, inclusion
of friends of the court briefs, if you will, publication of panel deci-
sions. Those types, sort of transparency values that we take for
granted here in the United States are critical, we think, to the
WTO taking into account values like the environment, but also
gaining public confidence in the decisionmaking processes.
Chairman Crane. Thank you.
Mr. Levin.
Mr. Levin. Thank you.
Mr. Van Putten, I will start with you. Thank you. I think your
testimony is constructive, and I think there is a spirit of willing-
ness to look at issues together, and I hope everybody picks that up.
Mr. Kleckner, I, for one, lean in your direction. I hope we can re-
solve in terms of this early harvest. Maybe — the Farm Bureau, you
are not in favor of early harvest usually. It is not ripe. But, seri-
ously, I trust we will work hard to work this out. It seems to me
if you say in advance you will accept separation, you are likely to
have people try to cherry-pick issues, while if you say you want to
wait until it is all resolved before anything, there is a pressure to
resolve everything. You can later modify that if you need to. That
is the way I lean.
First, service products. I remember when I was over for the Uru-
guay round talking to some Europeans, Mr. Dillon, but in those
days — it was not that long ago — some of the countries have 14-per-
cent tariffs, and we had much, much lower, as I remember it, and
that struck me as unfair. And I think you are right to call for be-
ginning to more level the playingfield, including the emerging
economies.
And I would just suggest to you that you look at the playingfield
and that you take into account issues including environmental dif-
ferentials, and we are not talking about having identical struc-
tures, but differentials as well as in the labor market. I mean, that
is part of the difference in scales.
In that regard I want to just say a word about the labor issues,
because, Mr. Kleckner, you said we cannot allow economic pros-
perity of our Nation and that of our agricultural producers to be
used as a weapon for nations that disagree with our values.
I don’t think that is, if I might say so, quite a fair way to say
it, because in a sense our struggle on trade has been to convince
people to abide by or incorporate our values in terms of free mar-
kets into their systems. And I think to separate out labor issues
that way, labor market issues kind of misses the point. And the
same with environmental issues.
In that regard — and I am sorry that Mr. Pepper is not here, be-
cause I was struck by his testimony. I happened to be at an advi-
sory Committee meeting where there was discussion and very open
discussion. And I hope all of us will encourage ACTPN to continue
these, and I wish Mr. Sweeney and Mr. Donahue good luck because
we need to try to find common ground. If we do not find it, I think
127
we are likely to have continued stalemate in straight issues here
and possibly a blowup in Seattle, and that is not what we want.
I finish, Mr. Micek, with your testimony because I am trying to
persuade you, and I am hoping Mr. Pepper can persuade you, to
discuss these issues. You say in your testimony that the agenda
should avoid globally divisive issues such as nontrade-related labor
or competition policies on which there is not yet a broad consensus
within the WTO. That is not to say these issues are unimportant.
It is merely to recognize that if contentious issues dominate the
ministerial, confidence in the global trading system and U.S. lead-
ership will be undermined.
You know, I have not been a USTR negotiator, but I have been
at a number of sessions, and they are nothing if not contentious.
I mean, we cannot eliminate issues from the ministerial and the
next round because they are contentious. Agriculture is sure — con-
tentious, my lord, that understates it.
And then you say on labor issues the U.S. is pursuing an appro-
priate course in increasing its support for the ILO and focusing its
efforts to achieve a forum on global labor issues within that organi-
zation.
I respect the ILO up to a point. It has been evolving some core
labor standards, but its function is limited. It has no enforcement.
There is nothing there except discussion and then unanimous
agreement to accomplish something. And the question is how we
take what they have evolved, and where they are part of the trade
equation, how we work it out so they are meaningful. So it will not
work to just say leave it to the ILO. And I think Mr. Pepper ac-
knowledges that. And that is the basis for the discussions with Mr.
Sweeney, how we are going to go try to find some common ground
beyond that. And I just urge everybody in the business community,
I urge everybody in the environmental community as well as the
labor community these next weeks and months to work hard, be-
cause otherwise who knows what is going to happen?
Thank you, Mr. Chairman.
Chairman Crane. Mr. Watkins.
Mr. Watkins. Thank you, Mr. Chairman, and let me say I appre-
ciate this panel very, very much, and I would like to preface some
things. My colleagues know I was here in Congress, and I left and
I went back to Oklahoma, and then I came back. I was on that side
of the aisle, and now I am back on this side of the aisle. So let me
say I came back for two reasons: One, to balance the budget. I felt
like I had not done justice by the future generation of our children
and grandchildren, and I am very proud of the fact we have bal-
anced the budget in this Congress and all.
Second, I came back because I wanted to help shape a 21st cen-
tury global competitive economy for this country. I hope — you may
say what is a 21st century global competitive economy? Let me say
that I see it as one that we have got to have less taxation. Some
of you have mentioned some countries do not have capital gains,
but we do have a situation in this tax bill that we are going to vote
right now on. We have got some great provisions that is going to
allow us to be more competitive around the world, so we need you
to go out and sell that to the American people, if we believe what
we are talking about.
128
The second thing we have got to have is less regulation if we are
going to be competitive. About 7 percent overburden we have on
our trade products because of regulations. We have got to try to
continue to ratchet that downward.
And third, we have got to have less litigation. I don’t know about
you, but in business I guarantee you I spend more money — or I did
when I was in business — let me say, there is no one any more sin-
cere in this Congress than I am about trying to have free and fair
trade. I want us to succeed. I could probably not have come back
to Congress. I could have probably shoved back and said this is not
going to affect Wes Watkins, but my children and grandchildren
have no way to go. They cannot. They have got to participate.
What we do has got to lay that kind of foundation in this world
in this global economy, and we are not going back, and we all know
that. I was born and raised on a farm. I love agriculture. I lost ev-
erything to a drought, but I went on to Oklahoma State University
and acquired two degrees in agriculture because I love it and know
it is very important.
I want to mention to Mr. Micek, could I ask you or maybe one
of your individuals to come by the office. I would like to discuss the
Emergency Committee on American Trade. And before Mr.
Kleckner leaves right fast. Dean, if I could, before you take off,
many of my farmers feel like that we are being traded down or we
are traded out in agriculture because when we negotiate it away.
I detect you have a concern, and we have got to have a package,
but not trade us out; is that correct?
Mr. Kleckner. Yes, sir, Mr. Watkins. You know, I talk to the
same people you do, whether they are in Oklahoma, and the feeling
is kind of general among farmers that we have not negotiated as
well as we could have, or if we did, we have not enforced the agree-
ments as well as we should have. And in the Farm Bureau, and
your State president. Jack, in your State, and other people I talk
to all around the country tell me consistently we have got to either
do a better job of negotiating, be a little firmer or tougher. Our tar-
iffs are so low, for example, that the average 50 percent we pay
around the world, other countries send agriculture products in here
at 5. What is fair about that? Bring them down a ways before we
do anything else or very much of anything else.
Mr. Watkins. In your testimony you say we are reeling out there
in agriculture, and I know we are. And we are under a freedom to
farm policy, but freedom to farm will not work unless we have free-
dom to the markets of the world, and we have to get rid of a lot
of these sanctions out there. Literally, we are killing ourselves.
Mr. Kleckner. Mr. Watkins, you recall when freedom to farm
passed in 1996, we supported it. I still think it is a good bill, but
there were certain things promised to us in return, including open-
ing markets around the world, less regulation, reformed taxes, all
of those things, so it went one way, it didn’t come the other way.
Mr. Watkins. That is correct. Thank you very much, and I look
forward to having a follow-up. I meet with a lot of your people.
And, chairman Micek, I appreciate what you are doing in those
areas. I would like to follow up with you or your people about the
emergency, and I will not belabor the Subcommittee by further
questioning.
129
Thank you, Mr. Chairman.
Chairman Crane. Thank you.
And I want to thank all of the members of the panel, and again,
we apologize to you for this chaotic day, but it is going to get worse,
not better. And with that, we are going to stand in recess subject
to the call of the Chair.
[Recess.]
Chairman Crane. Folks, the place has cleared out as I indicated
before. It is going to remain kind of chaotic this afternoon. But we
will get under way here. Our next panel includes William Weiller,
chairman and chief executive officer of Purafil Inc., in Atlanta, and
he is here on behalf of the National Association of Manufacturers;
Steven Warshaw, president and chief operating officer, Chiquita
Brands Corp., Cincinnati; Charles Lambert, chief economist. Na-
tional Cattlemen’s Beef Association; Kathleen Ambrose, vice presi-
dent, international affairs and co-leader of market access team.
Chemical Manufacturers Association; and finally David Smith, di-
rector, Public Policy Department, American Federation of Labor
and Congress of Industrial Organizations.
If you folks will please proceed in the order in which I presented
you, and try and keep your oral testimony as close to about 5 min-
utes as possible and then any printed statements will be made a
part of the permanent record.
And we will start out with you, Mr. Weiller.
STATEMENT OF WILLIAM WEILLER, CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER, PURAFIL, INC., AT-
LANTA, GEORGIA, ON BEHALF OF THE NATIONAL ASSOCIA-
TION OF MANUFACTURERS
Mr. Weiller. Thank you, Mr. Chairman. My name is Bill
Weiller. I am the owner and president of Purafil, a leading manu-
facturer of air purification systems based in Atlanta, Georgia. I
would like to thank you for the opportunity to testify before the
House Ways and Means Committee on the upcoming World Trade
Organization Ministerial and the impact of the WTO on small busi-
nesses like Purafil. I am here on behalf of the National Association
of Manufacturers and obviously also Purafil.
Many might be surprised that Purafil, a small American busi-
ness, about 70 employees, is even remotely interested in the World
Trade Organization and its objectives. In fact, we often encounter
the notion that global free trade is good for big companies and bad
for the little guy. Small — and medium-sized businesses do not at-
tract the headlines the multinationals do and often our success in
a global economy go without notice. I am here to let you know that
open trade is not only good for Purafil, it is the backbone of our
business.
In fact, Purafil is representative of many small businesses. I
have attached a chart to my testimony which you may find inter-
esting. In 1989 nearly half of the NAM’s small — and medium-mem-
ber companies said they did not export. Today only 1 in 5 fall into
that category.
In other words, in the last 10 years the share of NAM’s small —
and medium-member companies that export has gone from half to
more than three-quarters and it is a 50-percent increase. Let me
130
just hammer the point home. In 1989 less than 10 percent of
NAM’s small — and medium-member companies derived 11 percent
or more of their revenue from exporting. Today that share has
grown, doubled to more than 20 percent. That is an important
change that has taken place over the past decade and Purafil has
been part of it.
So let me tell you about Purafil. We manufacturer air quality
systems that remove odorous, corrosive, and toxic gases from the
air. In short, we sell clean air. Our customers include petro-
chemical companies like Saudi Aramco, Exxon, paper companies
like International Paper, Stora, Weyerhaeuser, museums and ar-
chives such as the Sistine Chapel, the Holocaust Museum, da
Vinci’s Last Supper, or the U.S. National Archives. Despite our
small size, Purafil is an industry leader in a niche market. Sixty
percent of our sales are made outside of the United States. Export-
ing is vitally important to Purafil. It is the cornerstone of our
coporpate strategy.
We have recognized that in order to survive and grow we have
to export and become experts in doing international business. The
problems that we solve are the same worldwide. A refinery in
Baton Rouge experiences the same hazardous emissions from man-
ufacturing processes as does a refinery in Saudi Arabia. If Purafil
were not present to solve these problems, the increased demand for
a solution would result in someone else from our foreign competi-
tors gaining the business. Right now Purafil is the best in the
world at solving air purification problems. We have few viable U.S.
competitors that serve all the applications in markets that we do.
That someone else could likely be a company from outside the U.S.
The trade barriers we come across when trying to export to some
countries are beyond the ability of any individual business to
change. For example, Mr. Chairman, the tariff for our equipment
to South Africa is 19 percent. In response to this, we signed a li-
censing agreement with a local representative so they would build
portions of our equipment in their country and remain competitive.
That representative utilized the Purafil name and proceeded to dis-
solve the relationship and become a low-cost, Purafil-educated com-
petitor, leaving us with little recourse.
We are facing similar high tariff situations in India, Brazil,
China, Russia and others. Purafil will continue to do everything in
its power to remain competitive. I am here today to ask you to do
your part. Level the playingfield so our people, our technology, our
products can compete in a global market. Don’t force us to compete
with the lack of transparency, the lack of access, irregular rule of
law and some of the trade barriers and tariffs currently in place.
That is why we support the NAM’s leadership role in organizing
a coalition to support the upcoming WTO Ministerial in Seattle.
The Alliance for U.S. Trade Expansion, commonly referred to as
U.S. Trade, encompasses an impressive broad-based group of agri-
culture, consumer, manufacturing, retailing and service organiza-
tions, representing $2 trillion in annual trade and over 150 million
Americans.
The coalition seeks to promote the benefits of economic growth,
job expansion and higher living standards in the United States as
131
a result of free trade and specifically U.S. participation in the
WTO.
And while Purafil is a small piece of the overall coalition we are
participating because we will continue to be successful only if we
maintain our international customer base. In order to do that, we
will depend on the reduction of tariffs and other trade barriers. A
multilateral rules-based approach to trade, negotiated through the
WTO, is strongly supported by Purafil. The United States should
take a leadership role in the pursuit of free and fair trade through
the WTO in order to support American business.
Thank you.
[The prepared statement follows:]
Statement of William Weiller, Chairman of the Board and Chief Executive
Officer, Purafil, Inc., Atlanta, Georgia, on behalf of the National Associa-
tion of Manufacturers
Good morning, Mr. Chairman. My name is Bill Weiller, I am the Chairman of the
Board and CEO of Purafil, a leading manufacturer of air purification systems based
in Atlanta, Georgia. I would like to thank you for the opportunity to testify before
the House Ways and Means Committee on the upcoming World Trade Organization
Ministerial and the impact of the WTO on small businesses such as Purafil. 1 am
here on behalf of the National Association of Manufacturers (NAM), and obviously
also for Purafil.
Many might be surprised that Purafil, a small American business with about 70
employees, is even remotely interested in the World Trade Organization and its ob-
jectives. In fact, we often encounter the notion that global free trade is good for big
companies and bad for “the little guy.” Small and medium-sized businesses do not
attract the headlines the multinationals do, and often our successes in the global
economy go without notice. I am here to let you know that open trade is not only
good for Purafil, it is the backbone of our business.
In fact, Purafil is representative of many small businesses. I have attached a
chart to my testimony, which you may find interesting. In 1989, nearly half of the
National Association of Manufacturers’ small and medium-sized member companies
said they did not export. Today, only one in five fall into that category. In 1989,
only 4 percent of those members earned more than 25 percent of their revenue from
exporting and another 4 percent earned between 11 percent and 25 percent. Today,
those percentages have more than doubled to 9 percent and 11 percent respectively.
Let me just hammer that point home. Today, in NAM’s surveys we’re finding that
exporting generates over 11 percent of the earnings for 1 out of every 5 exporters
and over 25 percent for 1 out of every 10 of these smaller manufacturers. 'That is
an important sea-change that has taken place over the past decade and Purafil has
been a part of it.
I’d like to tell you a little bit about my company. Purafil manufacturers air quality
systems that remove odorous, corrosive and toxic gases. In short, we sell clean air.
Our customers include paper mills in Argentina, Oklahoma and North Carolina. We
protect valuable artifacts in the Netherlands, the Sistine Chapel, and in Wash-
ington, DC. We service petrochemical refineries in Texas, Brazil, and Saudi Arabia.
Despite our small size, Purafil is an industry leader in this niche market.
Sixty percent of our sales are made outside of the United States. Exporting is vi-
tally important to Purafil: it is the cornerstone of our corporate strategy. We are
not a company that got into international sales by accident or solely as a reaction
to market demand. We have recognized that in order to survive, to continue to pro-
vide jobs to our employees, and to continue to fund the R & D efforts necessary to
our success, we have to export and become experts in doing international business.
The problems that Purafil can solve are the same worldwide. A refinery in Baton
Rouge experiences the same hazardous emissions from manufacturing processes as
does a refinery in Saudi Arabia. The Sistine Chapel protects its artwork from envi-
ronmental degradation, as does the U.S. National Archives in Washington. Our in-
tellectual property, considering our size, is significant. We have worked hard to take
a technology that was developed in the U.S. about 30 years ago and have constantly
refined and improved it.
If Purafil were not present to solve these problems, the increased demand for a
solution would result in foreign competitors gaining the business. Right now, Purafil
is the best in the world at solving air purification problems. We have a technology
that cannot be matched. Purafil has worked hard to stay on top of our industry, and
132
I fear that without exporting, someone else will take the lead. We have few viable
U.S. competitors that serve all the applications and markets that we do. That
“someone else” could likely he a company from outside the U.S.
The trade barriers we come across when tr3dng to export to some countries are
beyond the ability of any individual business to change. For example, Mr. Chair-
man, the tariff for our equipment in South Africa is 19%. In response to this, we
signed a licensing agreement with our local representative so they could build por-
tions of our equipment in country and remain competitive. That representative uti-
lized the Purafil name and proceeded to dissolve the relationship and become a low
cost, Purafil-educated competitor, leaving us with little recourse. We are facing simi-
lar high tariff situations in India, Brazil, China and others. One solution is to form
licensing agreements in these countries, but in doing so, we dilute our profit mar-
gins and make it easy for partners to eventually become competitors.
Purafil will continue to do everything in its power to remain competitive. I am
here today to ask you to do your part — level the playing field so our people, our
technology and our products can compete in the global market. Don’t force us to
compete with the trade barriers and tariffs currently in place.
I don’t need statistics, studies or business experts to tell me that exporting creates
jobs and is good for the economy. As a small business owner, I see it every day I
go to the plant. I’m constantly reminded when I look at the shipments on our dock
and see their final destinations.
That is why we support NAM’s leadership role in organizing a coalition to support
the upcoming WTO Ministerial in Seattle. The U.S. Alliance for Trade Expansion,
commonly referred to as “US Trade,” encompasses an impressive broad-based group
of agriculture, consumer, manufacturing, retailing and services organizations rep-
resenting $2 trillion in annual trade and over 150 million Americans. The coalition
seeks to promote the benefits of economic growth, job expansion and higher living
standards in the United States as a result of free trade and specifically U.S. partici-
pation in the WTO.
While Purafil is a small piece of the overall coalition mentioned above, we are par-
ticipating because we will continue to be successful only if we maintain our inter-
national customer base. In order to do that, we will depend on the reduction of tar-
iffs and other trade barriers. A multilateral, rules-based approach to trade, nego-
tiated through the WTO, is strongly supported by Purafil. The United States should
take a leadership role in the pursuit of free and fair trade through the WTO, in
order to support American business.
Thank you.
'Source: NAM Small Manufocturers Operating Suruey, 1989 and 1998
Chairman Crane. Our next witness, Mr. Warshaw.
L33
Survey of NAM Small/Medium Members
134
STATEMENT OF STEVEN G. WARSHAW, PRESIDENT AND CHIEF
OPERATING OFFICER, CHIQUITA BRANDS INTERNATIONAL,
INC., CINCINNATI, OHIO
Mr. Warshaw. Mr. Chairman, my name is Steve Warshaw. I am
president and chief operating officer of Chiquita Brands Inter-
national. Chiquita Brands brings a unique perspective to these
issues, being one of a very small group of American companies to
have experienced every step of the WTO process from beginning to
an end that never occurs.
In 1994, as Congress debated U.S. accession to the WTO, Under-
secretary of Commerce Jeffrey Garten made the following state-
ment: “The new WTO dispute settlement process will be much
more effective than that of the old GATT system. Whereas in the
past, parties could interminably delay the resolution of disputes,
dispute settlement procedures will now be subject to strict dead-
lines and the adoption of panel findings will be binding and all but
automatic.”
Clearly the banana and recent beef cases are proof that the dis-
pute settlement process has not lived up to that promise. Injured
parties can litigate for years, win their cases and still not be com-
pensated for damages.
The EU has lost two GATT rulings and four WTO rulings in the
banana case, but its illegal banana trade practices remain in effect
today. Chiquita Brands and Latin American economies continue to
be harmed. The WTO calculated that Europe’s illegal actions have
cost U.S. interests alone $191.4 million annually, almost all of
which has been borne by Chiquita Brands.
When any company suffers annual losses of this magnitude,
timely relief becomes essential. The WTO procedures alone took
3 V 2 years just to get to the point of retaliation and there is still
no relief. After the U.S. won a favorable ruling in the banana case,
Europe was entitled to continue its illegal practices for another 15
months. This 15-month grace period alone caused $270 million of
additional injury to our interests. At the end of that period, the EU
was able to claim that it was in compliance, even though it was
not, as a way of further prolonging the procedures.
Such a system provides absolutely no incentive for prompt com-
pliance. In reality it rewards delays, obstruction and noncompli-
ance. And so, Europe has delayed, blocked, evaded, argued, ap-
pealed, vetoed and repeatedly sought ways to avoid its obligations
under international trade rules.
The only tool for reversing noncompliance under the WTO is re-
taliation. In order to accomplish its objective of inducing compli-
ance, it needs to be effectively applied. To date, the banana and
beef retaliatory actions against Europe have been unsuccessful by
any standard or measure. Five months after retaliation took effect
in the banana case Europe is still proposing WTO inconsistent ba-
nana arrangements. In the beef case Europe is promising never to
lift its ban.
Their continuing obstruction has persuaded several U.S. farm
groups that static retaliation is not sufficient leverage. In order to
increase internal pressure to comply, we recommend that retalia-
tion targets within Europe be rotated at regular intervals. We be-
lieve this so-called “carousel retaliation” approach would be en-
135
tirely consistent with WTO law and urge the Trade Subcommittee
to insist on its use to bring disputes to their proper conclusion.
As this Subcommittee considers the critical issue of dispute set-
tlement in the months leading up to the Seattle Ministerial, we
urge you to examine the serious flaws that have emerged as a re-
sult of the banana and beef disputes. The banana case in particular
offers several valuable lessons. This has become the most litigated
trade issue in the history of dispute settlement. The United States
and the Latin Americans have won every major round. The rulings
have been unambiguous, decisive and precedent setting and still,
despite more than 6 years of successful decisions in the GATT and
WTO, Europe’s illegal practices continue.
If the shortcomings raised in the banana and beef disputes are
resolved, the WTO can still live up to the promise that former Un-
dersecretary Garten described and that Congress endorsed. But un-
less they are resolved and existing rulings and agreements are en-
forced, new agreements should not be pursued. Chiquita Brands is
eager to assist the Trade Subcommittee in addressing these critical
issues in the coming months.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Steven G. Warshaw, President and Chief Operating Officer,
Chiquita Brands International, Inc., Cincinnati, Ohio
Mr. Chairman and Members of the Committee, my name is Steve Warshaw. I am
President and Chief Operating Officer of Chiquita Brands International.
As this Committee knows, the Banana case — for reasons quite apart from ba-
nanas — has become important for what it says about the WTO system. The case
makes clear the imperative for more effective, streamlined procedures; for good faith
compliance on the part of all WTO members; for more effective application of retal-
iation; and, above all, for a system that delivers measurable relief to the injured
U.S. commercial interests.
Chiquita Brands brings a unique perspective to these issues, being one of a very
small group of American companies to have experienced every step of the WTO proc-
ess from beginning to an end that never seems to occur. It is my hope that our com-
pany’s experience can contribute constructively to the national debate and congres-
sional focus in the months leading up to the Seattle WTO Ministerial.
The Need for More Effective, Streamlined Procedures
More than five years ago, as Congress debated U.S. accession to the WTO, Under-
secretary of Commerce Jeffrey E. Garten made the following statement:
“The new World Trade Organization dispute settlement process will be much
more effective than that of the old GATT system. Whereas in the past, parties could
interminably delay the resolution of disputes, dispute settlement procedures will
now be subject to strict deadlines and the adoption of panel findings will be binding
and all but automatic.”
Clearly, the Banana case is proof that the WTO system and its dispute settlement
process have not lived up to that promise described by former Undersecretary
Garten. In fact, what this case — and the recent Beef case — show is that the WTO
has a dispute uou-settlement procedure. Injured parties can litigate for years, win
their cases, and still not be compensated for damages as the illegal trade practices
continue unimpeded.
Let me briefly review the history of the six-year Banana case, which has taken
away more than half of our 100-year-old European business, and inflicted serious
economic injury on many of the poorer banana-producing nations of Latin America
at a time when these developing countries were being required to open their mar-
kets and abide by new trade obligations.
• In 1993, the EU instituted an illegal banana policy that systematically and de-
liberately destroyed much of Chiquita Brands market share in Europe.
• In late 1993, the GATT ruled that the EU banana policy violated trade agree-
ments. In response, the EU blocked the GATT ruling and maintained its illegal
practices.
136
• In 1994, the GATT again ruled that the EU hanana policy was illegal. In re-
sponse, the EU again blocked this second GATT ruling and maintained its illegal
practices.
• In May 1997, using new trade rules, the WTO found that the EU banana policy
violated the WTO. In response, the EU appealed the ruling and continued its illegal
practices.
• In September 1997, a WTO appeals panel reiterated the ruling that the EU ba-
nana policy contained more illegalities than virtually any other policy ever reviewed
in dispute settlement. Having exhausted its appeal process, the EU finally changed
its banana policy — by making it more illegal and more damaging to U.S. interests.
• In March 1999, at the request of the United States, the WTO determined that
the EU’s “new” banana policy also violated WTO rules. In response, the EU ignored
the WTO and maintained its illegal practices.
• In April 1999, when the United States imposed punitive tariffs against Europe
in retaliation, the EU ignored the action.
To this day, Europe’s illegal banana trade practices remain in effect. Chiquita
Brands and Latin American economies continue to be harmed. The adverse impact
to our business has been substantial.
The WTO calculated that Europe’s illegal actions have cost U.S. interests $191.4
million annually — almost all of which has been borne by Chiquita Brands. The U.S.
government and our company believe that number, which was determined by an ar-
bitration panel, is far below actual U.S. and Latin loses.
When any company suffers annual losses of this magnitude, timely relief becomes
essential. The WTO procedures alone took three and a half years just to get to the
point of retaliation, and there is still not resolution or relief. This timetable is en-
tirely too long when significant injury is compounded year after year. By author-
izing prolonged delays, the WTO effectively legitimizes evasion, obstruction, and
runaway injury to the prevailing party. How many American companies, farmers or
industries could sustain that amount of injury for that amount of time?
The delays are all the more frustrating because they arise for inequitable and il-
logical reasons. In the Banana case, for example, consistent with standard WTO
procedures, even after the United States received a favorable ruling, Europe was en-
titled to continue its illegal, harmful practices for another 15 months. To make mat-
ters worse, WTO rules prohibited the United States from scrutinizing Europe’s so-
called compliance or plans for a “new” banana policy during those 15 months. As
a result, at the end of that period, the EU was able to claim that it was in compli-
ance, even though it was not, as a way of further prolonging the procedures and
its illegal trade practices.
Using the WTO’s own injury calculations, the aggregate harm done to our inter-
ests during the multi-year period from when the WTO procedures first began to the
date retaliation took effect was $670 million. The EU’s 15-month grace period — that
is, the period after the favorable ruling — alone caused $270 million of additional in-
jury to our interests.
Under present WTO rules, Chiquita Brands can never recover the damages in-
curred during those periods. Relief, if provided, will be strictly prospective, with no
retroactive penalty imposed on Europe for the damage it has caused in the mean-
time. Such a system provides no incentive at all for prompt compliance and every
incentive for protectionist member countries to gain a lasting commercial edge over
U.S. interests without fear of penalty or economic consequence. In reality, the WTO
procedures reward delays, obstruction and non-compliance: European banana inter-
ests continue to earn illegally conceived profits. There is no mystery in why the EU
continues to procrastinate and evade compliance with GATT and WTO rulings.
The Need for Good Faith Compliance
Another major concern arising from the Banana case is one that Ambassador
Barshefsky has described as Europe’s “30-year pattern of refusing to accept panel
decisions.” Nowhere is that pattern more apparent than in the Banana case.
Under the old GATT, the EU blocked two banana panel rulings. New WTO rules
were supposed to prevent such tactics. However, even under the WTO, the EU has
continued to do everything possible to avoid compliance.
For decades, the EU has demonstrated this pattern of protectionism and prevari-
cation. In case after case, Europe has delayed, blocked, evaded, argued, appealed,
vetoed and repeatedly sought ways to avoid obligations under international trade
rules. It has happened on citrus, pasta, canned fruit, soybeans, beef, and bananas.
The list goes on, and so do Europe’s unlawful trade practices.
For Chiquita, the problem of chronic non-compliance threatens our business. For
the WTO system, the stakes are equally high. If Europe, the largest WTO member.
137
continues its pattern of non-compliance, legitimate questions will be raised about
the real value of the WTO.
The Need for More Effective Retaliation
The only tool for reversing non-compliance under the WTO is retaliation. When
WTO-sanctioned retaliation is imposed, it must be applied in a way that induces
compliance as quickly as possible. If retaliation is the end-result, the injured peti-
tioning interest gets no relief and the entire multi-year litigation process becomes
futile.
To date, the Banana and Beef retaliatory actions against Europe have been un-
successful by any standard. Five months after retaliation took effect in the Banana
case, Europe is still proposing WTO-inconsistent banana arrangements. In the Beef
case, Europe is promising never to lift its ban.
Europe’s response to these retaliations has persuaded the American Farm Bu-
reau, the National Cattlemen Beef Association, the American Meat Institute, the
U.S. Meat Export Federation, the Hawaii Banana Industry Association and
Chiquita Brands that static retaliation is not sufficient leverage. In order to increase
internal pressure to comply, we recommend that retaliation targets within Europe
be rotated at regular intervals. Because the overall level of retaliation against Eu-
rope would not change, we believe this so-called “carousel retaliation” approach
would be entirely consistent with WTO law. We urge the Trade Subcommittee to
insist on the use of carousel retaliation in order to bring these cases — and future
disputes — to their proper conclusion.
The Need for Measurable Relief to the Injured U.S. Industry
Ultimately, the proper and equitable conclusion of dispute settlement must be full
WTO compliance and the delivery of quantifiable relief to the petitioning U.S. indus-
try. Chiquita, like other U.S. companies and farmers, has availed itself of dispute
settlement with that singular objective in mind. U.S. interests, particularly agricul-
tural interests, have often made the point that if prominent cases like Bananas and
Beef are not resolved in a way that produces a fair outcome and tangible relief,
WTO dispute settlement will inevitably lose its appeal.
This overriding imperative has not yet been grasped by the European Commis-
sion, which continues to propose certain new banana arrangements that would in
fact increase injury to Chiquita Brands. Congress and the Administration need to
reinforce in the clearest way possible the message to Europe that dispute settlement
is intended to accord commercial relief from illegal practices and that outcomes that
fall short of that objective will be unwelcome and of no help in lifting U.S. retalia-
tion.
Conclusion
America’s agricultural sector is the most productive and competitive in the world.
Despite this fact, some of our nation’s most important export markets are being sto-
len away by illegal trade practices. We don’t permit America’s intellectual property,
patents, or high technology industries to be subjected to such treatment, and we
shouldn’t allow it in agriculture.
As this Subcommittee considers the critical issue of dispute settlement in the
months leading up to the Seattle Ministerial, we urge you to examine the serious
flaws that have emerged as a result of the Banana and Beef disputes. These cases
provide concrete examples of the obstacles that any U.S. interest could encounter
when taking on unfair practices by the EU.
Unless solutions to these inadequacies can be found prior to the WTO Ministerial
Meeting, many will question the value of new agreements, given that existing ones
cannot be enforced. On the other hand, with proper attention to the concerns raised
in the Banana and Beef disputes, the WTO can still live up to the promise that
former Undersecretary Garten described and that Congress endorsed. Chiquita
Brands is eager to assist the Trade Subcommittee in addressing these critical issues
in the coming months.
Chairman Crane. Thank you.
Our next witness, Mr. Lambert.
138
STATEMENT OF CHARLES D. “CHUCK” LAMBERT, PH.D., AND
CHIEF ECONOMIST, NATIONAL CATTLEMEN’S BEEF ASSO-
CIATION
Mr. Lambert. Thank you, Mr. Chairman and Members of the
Subcommittee, for holding hearings on issues that are vitally im-
portant to American agriculture. I am Chuck Lambert, chief econo-
mist of the National Cattlemen’s Beef Association. Exports of meat
and grains are imperative for the United States. We have only 4
percent of the world’s population but a large share of the world’s
production agriculture.
One of the underlying premises of the 1996 Freedom to Farm bill
was that aggressive pursuit of growing export markets would re-
place the safety net of traditional farm programs. There must be
followthrough by Congress and the administration on this obliga-
tion.
The Seattle Round of trade talks will be a defining moment for
world agriculture trade. Success of the Seattle Round dictates that
the U.S. take the high road to expanded exports and freer trade
with less dependence on government assistance. The near agree-
ment with China last April was a good one. Hopefully it will be
completed and set the benchmark for tariff reduction and market
access for WTO members to follow in November.
NCBA supports three process objectives for the negotiations as
follows. Set the 3-year time line for concluding the negotiations, no
product or policy exemptions, and three, conclude with a single
agreement that encompasses all sectors. There is a perception
among many in agriculture that past negotiations often traded ag-
ricultural interests for other priorities. NCBA and other agricul-
tural organizations strongly object to the finalization of agreements
in any other sector until agreements in agriculture are concluded.
From the parochial view of the beef industry, the overall objective
of U.S. trade policy is to maintain and increase access to existing
markets for U.S. beef and to gain access in emerging markets.
NCBA supports addressing the specific points regarding the up-
coming WTO negotiations. Prevent the EU from rolling back
progress made during previous agreements. Ensure that science re-
mains the only basis for resolving the SPS agreements. Protect
science-based technologies and establish transparent science-based
rules. Eliminate state trading entities. Negotiate reduction and
eventually elimination of production-distorting price supports, and
I will add here including those that are currently insulated in the
blue box, and eliminate export subsidy programs. Establish a tar-
get date for reducing all tariffs to zero, and until that elimination
can take place, continue tariff reduction and expands tariff rate
quotas to permit continued growth in exports.
U.S. beef entering many Asian markets still faces close to a 40-
percent tariff. In Europe, we face a 20-percent tariff and that is
within a very small quota of 11,500 metric tons, even if we had all
of our other issues resolved. Prices still drives the effective demand
for our product, and tariffs increase price. Continued tariff reduc-
tion is critical.
I am clearly aware of the administration and other sector posi-
tions regarding dumping. But the fact is the current definition of
dumping does not make sense for many agricultural commodities.
139
Cyclical commodities, including beef, have periods of low prices.
Often those prices are helow the cost of production for most of the
industry. That is why our industry is cyclical. By WTO definition
the heef industry may be considered to be dumping during periods
of low prices, even in the absence of evidence of predatory behavior,
intention to monopolize or other efforts to drive competitors out of
business.
Under the current definition, U.S. dumping suits were filed in
1998 against cattle from Canada and Mexico. In return Mexican
feeders and processors filed a dumping case against heef and cattle
from the United States. Mexico announced tariffs as high as 215
percent just last Monday for some exporters of some U.S. products.
Among the strengths of the current WTO system is a well de-
fined process for initiating a case for determining the final ruling.
The current — the strict, science-based rules established for resolv-
ing these issues is another major strength. The primary weakness
of the current system is the absence of an enforcement mechanism
to assure compliance once the ruling is issued. Canada and the
United States painstakingly followed the WTO dispute settlement
process for changing regulations to come into compliance with the
WTO ruling.
No one wins in trade wars, and our preference is for access. All
we ask is for Europe to give their consumers a choice. Our nego-
tiators with our advice and consent have offered labeling beef as
a product of the U.S. to the EU with no success.
If Europe continues to thumb its nose at this science-based proc-
ess, the WTO is in jeopardy of losing its credibility. Thank you for
the opportunity to present this information.
[The prepared statement follows:]
Statement of Charles D. “Chuck” Lambert, Ph.D., and Chief Economist,
National Cattlemen’s Beef Association
Thank you Chairman Crane and the Subcommittee for holding hearings regarding
issues to be addressed in the 1999 Seattle Ministerial meeting. NCBA commends
your continuing efforts to improve the export outlook for U.S. agricultural products.
I am Chuck Lambert, Chief Economist for the National Cattlemen’s Beef Associa-
tion,
Importance of Trade:
Beef and pork producers have always avoided the traditional supply management
and price support programs, and therefore, had the “freedom to farm” as well as
“freedom to fail.” Livestock producers add value to grain produced by our neighbors
by feeding it through our livestock.
Livestock producers are becoming increasingly dependant on the rest of the world
to buy our products. Exports of meat and grains make sense for the US, a country
that has only 4 percent of the world’s population, but a large share of the world’s
production agriculture. Exports of beef have helped to take up the slack of declining
demand for beef at home. We, as an industry, have worked hard to promote beef
exports which now account for over 12 percent of the value of wholesale beef sales.
On a tonnage basis, we export 8-9 percent of what we produce.
The 1998 calendar year — a year of recession in most Asian markets — was the first
time that more than one million metric tons of US beef and beef variety meats have
been exported. Compared to 1997, exports of beef and beef variety meats during
1998 increased of 4.75 percent on a volume basis but declined 5.44 percent on a
value basis as U.S. beef prices declined and international customers shifted to a
lower-price mix. As an industry, we have expanded exports of beef and beef variety
meats from about one-half billion dollars twenty years ago, to approximately $3 bil-
lion today. During the first five months of 1999, beef exports increased 6.43 percent
on a volume basis and 6.56 on a value basis compared to the same time in 1998.
140
The Seattle Round of world trade talks will be the defining moment for world ag-
ricultural trade. The US beef industry has worked hard to expand sales of our prod-
uct in the younger, fast growing, overseas markets. In spite of record US meat ex-
ports and efforts of most commodity organizations to expand exports, prices for
nearly all US agricultural products remain very low.
There is a perception among many in agriculture that past GATT and WTO
rounds often traded agricultural priorities for other priorities and left US crop and
livestock producers facing high tariffs and a host of non-tariff trade barriers in over-
seas markets while opening US markets to imports. One of the underlying premises
of the 1996 “Freedom to Farm Bill” was that aggressive pursuit of growing export
markets would be a critical strategy to replace the safety net of traditional farm pro-
grams. The pursuit of export markets includes eliminating trade barriers and this
must be a successful part of the next round.
Success of the Seattle Round means that the US must take the high road to ex-
panded exports and free trade, with less dependence on government assistance. Fail-
ure to follow this course will take us down the road to protectionism — if not isola-
tionism — trade wars and a return to costly government supply management and
price support farm programs. The near-agreement with China last April, if finalized,
would set a good example for other countries for reducing trade barriers. If the
agreement with China — which would be contingent upon approval of permanent
Normal Trading Relations — can be finalized it will set the pace for all of the WTO
countries to follow in November. The proposed China agreement would allow for:
• a bilateral Sanitary/Phytosanitary agreement for China to accept all USDA ap-
proved processing plants as eligible to ship to China. This bilateral agreement has
been finalized, but its impacts will depend on finalization of the overall trade pack-
age with China. The proposed overall package would allow for the following with
respect to the beef industry:
• duties on certain beef items to decline from 45 percent to 12 percent over a five-
year period
• a commitment not to subsidize domestic agricultural products
• US investment in distribution, wholesaling, retailing, and transportation
Objectives For The 1999 WTO Negotiations
NCBA, in conjunction with nearly 60 other agricultural and food sectors, ex-
pressed support for launching a comprehensive round of multinational trade nego-
tiations in an April 1, 1999 letter to President Clinton. The group specified three
process objectives for the negotiations, as follows:
• Establish a three-year goal for concluding the negotiations.
• Adopt the Uruguay Round framework for the 1999 agricultural negotiations so
there are no product or policy exceptions.
• Conclude with a single undertaking that encompasses all sectors.
NCBA and other agricultural organizations strongly object to the conclusion and
implementation of agreements in any other sector until agreements in agriculture
are finalized. Many other countries have remained very protectionist of agriculture
while negotiating expanded trade in other sectors. Unless there is a reciprocal open-
ing of agricultural markets there will be very little support within the agricultural
community for these trade agreements in other sectors.
NCBA and the U.S. beef industry believe that the overall policy objective for U.S.
trade is to maintain and increase access to existing markets for U.S. beef, beef by-
products and other industry-related products and to gain access in emerging mar-
kets for these products. NCI5A and other meat industry groups support the following
specific points to be addressed during the 1999 round of WTO negotiations:
• Prevent the EU from rolling back progress made during the previous GATT
agreement. Enforcement of the strict science-based trading rules established in the
Uruguay Round Agreement on Sanitary and Phytosanitary Measures (the SPS
Agreement) is critical to continued expansion of U.S. beef exports.
• Ensure that science remains the only basis for resolving SPS issues. To ensure
this outcome, the red meat industry does not support opening the SPS Agreement
for further negotiation in the next trade round.
• Protect scientifically approved technologies, such as Genetically Modified Orga-
nisms (GMOs) and beef growth promotants that enhance production efficiency or
food safety by establishing transparent, science-based rules.
• Eliminate State Trading Entities (STEs) and increased access to wholesale and
retail trade in importing countries (especially relevant in China, Australia and Can-
ada)
• Reduce and eventually eliminate production-distorting price supports and ex-
port subsidy programs. In addition, stricter disciplines and tougher enforcement
141
mechanisms should be established to prevent the emergence of new schemes to cir-
cumvent WTO rules.
• Continue to reduce tariffs and expand Tariff Rate Quotas (TRQs). Existing du-
ties in key export markets such as Japan and Korea must be reduced to single digit
levels and a target date must be established for reducing all tariffs to zero. Until
elimination of duties can be accomplished, existing tariff rate quotas must continue
to be expanded to permit continued growth in exports.
From the beef industry perspective the last point may be the most crucial. US
beef entering many markets for US beef in Asia (Japan, Korea, and China) still
faces close to a 40 percent tariff. Price still drives the effective demand for our prod-
uct. If one looks at Mexico, you can see what the effects of eliminating tariffs of 20
to 25 percent did in that market after NAFTA was initiated — even with the 50 per-
cent devaluation of the peso in late 1994. While we have done well in the Asian
countries, tariff reduction must he one of the main keys to exporting more red meat
to countries with high tariffs.
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Definition of Dumping:
The beef industry is driven by supply and demand and these forces determine the
market price for beef. Market-driven industries traditionally run in cycles, and most
beef producers periodically sell below the cost of production (at a loss) during the
high production/low price periods of the cattle cycle. Indeed, it is these low prices
and industry losses that result in herd reduction and declining supplies. These peri-
ods of cyclical low prices and producer losses in the beef industry meet the definition
of dumping under current WTO rules — even in the absence of evidence of predatory
behavior, intention to monopolize, or other intentional efforts to drive competitors
out of business.
Producer unrest has resulted from low prices for agricultural commodities and the
threat of protectionism is rearing its ugly head. The storm clouds of unrest include
calls for dumping lawsuits, blockading borders and other retaliatory measures to re-
strict trade. The current definition of dumping under WTO rules does not make
sense for commodity markets like beef because one of the criteria to file a dumping
case is that the commodity must be sold below the cost of production in the import-
ing country.
Under the current WTO definition of dumping, suits were filed against Canada
and Mexico in 1998 and in return, Mexican feeders and processors filed a dumping
case against the United States. Mexico announced tariffs as high as 215 percent just
last Monday (August 2, 1999) for some exporters of some heef products. These cases
were the fallout of cyclically low market prices related to supply and demand and
had nothing to do with predatory behavior, monopoly practices or the intention of
142
beef producers in one country to drive other producers out of business. The bottom
line is that these cases will cost the beef industry scarce resources to defend without
addressing the base cause of low prices. Ultimately, these cases will lead to less effi-
cient trade patterns without significantly increasing producer profitability. During
future negotiations NCBA supports changing WTO rules that define beef dumping
to include factors other than selling below the cost of production.
Maintain Integrity of the WTO — Fortress Europe:
Existence of a well-defined process for initiating a case and for determining the
final ruling
is among the strengths of the current WTO system. The current system is much
improved from its GATT predecessor in this respect. The strict science-based rules
established for resolving these issues is another major strength of the current dis-
pute settlement process. The primary weakness of the current system is the absence
of an enforcement mechanism to assure compliance once the ruling is issued.
The US has been unfairly locked out of the European beef market for more than
10 years by a thinly veiled trade barrier commonly referred to as the EU hormone
ban. During the past decade, the EU has not been able to cite scientifically valid
reasons for the ban. The U.S. filed its formal complaint with the WTO in January
1996, claiming the beef ban was a non-tariff trade barrier. Argentina, Australia, and
New Zealand joined the United States in the action while Canada filed a separate
case. Canada and the United States painstakingly followed the WTO dispute settle-
ment process for three and one-half years before retaliation finally began on July
29, 1999. Negotiations continue.
The objective of U.S. the beef industry has always been to re-gain access to the
European beef market, not retaliation. No one wins trade wars and that the US beef
industry preference is for access. All we ask is for Europe to give their consumers
a choice. The industry has agreed to label US beef as a “product of the US” or as
“USDA inspected and approved” as negotiating alternatives with no success. The
same issues will be raised regarding BT corn, or Roundup-ready soybeans and other
technologies that that have been proven safe.
The European response raises the question, “what do we do with a country that
has agreed to a set of rules on trade, refuses to live by them, but expects other coun-
tries to comply?” If Europe continues to thumb their nose at this science based proc-
ess, the whole WTO may be in jeopardy of losing its credibility.
Many U.S. cattlemen have a perception that the EU is undermining the current
system and has perfected the stall and delay tactic with immunity. Many are asking
why the U.S. continues to participate in a system that does not provide a clear and
prompt resolution to trade disputes. This growing loss of confidence and increasing
distrust has resulted in declining grassroots support for trade and trade negotia-
tions in general.
WTO Dispute Settlement Process Modification:
Shortening the WTO dispute settlement process or providing for a mechanism
that allows the winning party to be compensated while the losing party delays im-
plementation may be alternatives. Perhaps some type of escrow account or bonding
requirement could be established so the defending party would begin paying when
the initial ruling is made. Alternatively, the amount of injury could be established
at the time that the “reasonable period” is determined with the amount of injury
dependant on the length of time it takes for the losing party to come into compli-
ance.
Under the current system, compensation or retaliation only starts once the entire
process is completed and the injured party is not reimbursed for losses incurred dur-
ing or prior to the case. There is no incentive for early settlement by the losing
party. In fact, the current system rewards blatant stall and delay tactics. The prob-
lem tends to be more with the current dispute settlement process because the losing
party only has to pay for future losses and the payments won’t begin as long as the
process can be strung out.
Another alternative supported by the beef industry and others is for the retalia-
tion list to be revised periodically — often referred to as carousel retaliation. Under
the current system, the countries and the commodities that are not affected by retal-
iation breathe a sigh of relief and there is no further political pressure from these
entities for change. If the list of affected commodities were subject to change on a
random basis no countries or commodities would be exempt with certainty. Uncer-
tainty would continue to generate pressure from all parties for changing regulations
to come into compliance with the WTO ruling.
143
A Clear Plan:
It is clear that Congress and the Administration do not have a unified strategy
to systematically attack the trade problems of US agriculture as part of the upcom-
ing negotiations. The inability to secure approval of “fast track” continued negoti-
ating authority prior to the Seattle Ministerial meeting is testimony to this void.
A^icultural producers are justifiably concerned about sending a team to the negoti-
ating table that has a more consistent track record of in-fighting among Congres-
sional and Administrative ranks rather than engaging the opposition.
The U.S. must hold its trading partners to commitments agreed to in previous
trade agreements or risk losing public support for additional trade negotiation au-
thority. Without fast track authority, the U.S. will lose the initiative in gaining ac-
cess to emerging markets and enforcing existing trade agreements.
The National Cattlemen’s Beef Association is prepared to participate in the proc-
ess of evaluating critical trade issues within the beef industry. NCBA looks forward
to providing additional input as the U.S. addresses other trade issues, including ac-
cession of China to the WTO and approving legislation to provide authority for nego-
tiating additional trade agreements. Thank you for the opportunity to present this
information.
Chairman Crane. Thank you Mr. Lambert. Our final witness,
Ms. Ambrose.
STATEMENT OF KATHLEEN A. AMBROSE, VICE PRESIDENT,
INTERNATIONAL AFFAIRS, AND CO-LEADER, MARKET AC-
CESS TEAM, CHEMICAL MANUFACTURERS ASSOCIATION, AR-
LINGTON, VIRGINIA
Ms. Ambrose. Thank you, Mr. Chairman. I am Kathleen Am-
brose, vice president for international affairs of the Chemical Man-
ufacturers Association. I have spent more time sitting in the staff
chairs behind you, Mr. Chairman, than I have on this side of the
aisle but I appreciate the opportunity to testify today before this
Subcommittee.
CMA is a nonprofit trade association whose 190 members rep-
resent 90 percent of the productive capacity for basic industrial
chemicals in the United States. If I leave you with any thought
today, I would like to leave you the following thought, and the fol-
lowing information: The U.S. chemical industry is America’s largest
exporting sector. We, in 1998 alone, contributed $13.4 billion to the
positive trade surplus on our more than $68 billion in export sales.
Therefore we have a large stake in the next round of trade negotia-
tions.
CMA and its member companies support the launch of a new,
broad-based and flexible round of trade negotiations to be launched
in Seattle and a negotiation process that allows for individual
agreements to be implemented as they are completed. We are “teed
up”, as they say, as an accelerated tariff liberalization sector. We
have worked with the other ATL sectors to offer a position that
would bridge the gap that we have just been describing here today
brought to you both by the USTR’s office and by my counterparts
even on this panel. We strongly believe that early results in the
round will not jeopardize the concept of single undertaking and
that the objectives of the round can be accomplished if we all work
together.
CMA’s highest priority is increased country participation in the
Chemical Tariff Harmonization Agreement. We have worked with
144
USTR through the Early Voluntary Sector Liheralization process
both in APEC and then as it became ATL to move to the WTO. It
is designed to be building on our current agreement that was com-
pleted in the Uruguay round. Our view is that expanding the
Chemical Tariff Harmonization Agreement to include additional
countries that are chemical producers can be accomplished as an
early result of the round and that at the end of the day, the single
undertaking concept can be fully accommodated within the upcom-
ing round.
It is essential that the timing of achieving results during the ne-
gotiations not be confused with the objective of a single under-
taking at the conclusion of the round. Use of a common crediting
mechanism that keeps a running total of all liberalization and a
provisional implementation schedule will enable us to recognize
that all WTO members at the end of the day must take on the obli-
gations of all WTO Agreements.
Achieving results in the ATL sectors provisionally with binding
results at the end of the negotiations increases rather than de-
creases the chance that all parts of the American business commu-
nity will devote their energies toward completing a beneficial,
broad-based round that is in the United States economy’s interest.
The worldwide chemical industry is united in its endorsement of
a new WTO round through these mechanisms. In June, the Inter-
national Council of Chemical Associations for which I serve as the
Secretariat, a Coalition of Chemical Industry Associations of the
United States, the European Union, Japan, Canada, Mexico, Ar-
gentina, Brazil, New Zealand, and Australia, endorsed the goal of
elimination of all chemical tariffs in the next WTO round. It stated
that new rounds should build on the sectoral negotiations that
have been going on for the last 3 years in APEC. And, in addition,
it supported the concept of early results so long as at the end of
the day all WTO members assume the obligations of the round in
the concept of single undertaking.
In addition, the ICCA called for the establishment of a global bal-
anced and beneficial investment regime, advocated rules under the
WTO for trade facilitation and sought full implementation of the
existing TRIPs agreement. The ICCA also urged clarification of the
relationship between multilateral environmental agreements and
the WTO rules.
In summary, Mr. Chairman we support the launch of a new
WTO round that will be broad-based and that will benefit the full
American economy.
Thank you for this opportunity today.
[The prepared statement follows:]
Statement of Kathleen A. Ambrose, Viee President, International Affairs
and Co-Leader, Market Aeeess Team, Chemieal Manufacturers Associa-
tion, Arlington, Virginia
Good morning. I am Kathleen A. Ambrose, Vice President, International Affairs
and Co-Leader of the Market Access Team, of the Chemical Manufacturers Associa-
tion (CMA).
CMA is a non-profit trade association whose 190 member companies represent 90
percent of the productive capacity for basic industrial chemicals in the United
States. The U.S. chemical industry is a keystone of the U.S. economy and America’s
largest exporting sector. In 1998 alone, the industry tallied a $13.4 billion trade sur-
plus, generating more than $68 billion in export sales. Chemical exports easily out-
paced U.S. agricultural exports of $51 billion and aircraft and parts exports of $50
145
billion. U.S. chemical companies produce over 2% of America’s Gross Domestic Prod-
uct (GDP) and keep more than 1 million Americans at work. The chemical indus-
try’s strong export performance directly supports 180,000 of these high-tech, high-
wage jobs.
CMA and its member companies are committed to the multilateral liberalization
of trade and investment underpinned by a framework of rules implemented through
the World Trade Organization (WTO). We support the launch of a new hroad-based
and flexible round of trade negotiations at the WTO Ministerial Meeting in Seattle
and a negotiation process that allows for individual agreements to be implemented
as they are completed. We believe strongly that early results in the round will not
jeopardize the “single undertaking” objective of the round, which requires all WTO
members to implement all negotiated agreements.
Market Access and Accelerated Tariff Liberalization
A significant achievement of the global chemical industry in the Uruguay Round
was the Chemical Tariff Harmonization Agreement (CTHA), whereby 23 trading
partners included the harmonization of tariffs on chemical products to rates between
5.5 percent and 6.5 percent in their schedules of tariff concessions. Since the conclu-
sion of the Uruguay Round, the number of countries joining the CTHA or applying
CTHA rates has increased to 35.
CMA’s highest priority is increased country participation in the CTHA. We have
worked with the Office of the U.S. Trade Representative to include the objective of
harmonizing chemical tariffs as one of the “early voluntary sectoral liberalization”
(EVSL) initiatives in the Asia Pacific Economic Cooperation (APEC) forum. We con-
tinued these efforts through the transfer of the EVSLs to the WTO as the “Acceler-
ated Tariff Liberalization” (ATL) process.
The ATL in chemicals is designed to build on the results of the Uruguay Round
by bringing important chemical-trading countries into the CTHA. U.S. negotiators
have aided the industry’s efforts by including chemical tariff harmonization in the
market access requests of trading partners that are in the process of acceding to
the WTO. For instance, Chinese Taipei has already incorporated chemical harmoni-
zation in its schedule of concessions for implementation upon accession, and China
agreed to implement the chemical and other ATLs as part of its April 8th package
of market access commitments for WTO accession, provided that others in the WTO
also agree to do so. And, Indonesia announced recently that it would also begin low-
ering its tariffs on chemicals.
ATL and the New WTO Round
CMA and its member companies firmly support broad-based and balanced results
in the new round of WTO negotiations, and we support the “single undertaking”
mechanism as a means to achieve such results that also reflect the interests of all
parties. The single undertaking mechanism ensures that all elements of the nego-
tiated results (except where explicitly exempted and agreed) are subject to unified
dispute settlement and that all WTO members (developed and developing alike)
agree to obligate themselves to all elements of the negotiations, without derogation,
even though individual WTO members may be subject to differing timetables for im-
plementation.
Our view is that both early results, such as the ATL, and a “single undertaking”
can be fully accommodated within the upcoming round. It is essential that the tim-
ing of achieving results during the negotiations not be confused with the objective
of a single undertaking at the conclusion of the round. Use of a common crediting
mechanism that keeps a “running total” of all liberalization, together with recogni-
tion by all WTO members that they must participate in all agreements in the final
package, removes procedural impediments to begin implementing negotiated results
in specific sectors or issue areas as agreements are achieved. Thus, the timing for
reaching agreement on specific elements is far less important than ensuring that
the final negotiated result is balanced, reflects outcomes of interest to all parties,
and is mutually binding on all WTO members.
As an incentive for participation in early tariff liberalization, WTO members can
agree to provide countries with credit for guaranteed, bound trade liberalization en-
acted since the close of the Uruguay Round. The permanent binding of concessions
can take place, as in the past, at the conclusion of the round, or a release from the
provisional binding can be granted by the WTO should the round not reach a conclu-
sion.
Achieving early results in the multilateral negotiations adds to the credibility of
the WTO process by showing that it is not necessary to wait seven or more years,
as we did in the Uruguay Round, before tangible outcomes can be shown. Early re-
sults will help to keep the negotiating process manageable while also maintaining
146
momentum toward further liberalization. We think it is far better to implement
trade liberalization on a regular, ongoing basis than it is to force all issues and sec-
tors to be held in reserve for one “big bang,” but agonizingly slow, result.
International Chemical Industry Supports New WTO Round and Chemical Tariff
Elimination
The worldwide chemical industry is united in its endorsement of a new WTO
round and the elimination of all chemical tariffs by all WTO members. In June, the
International Council of Chemical Associations (iCCA) — a coalition of the chemical
industry associations of the United States, the European Union, Japan, Canada,
Mexico, Argentina, Brazil, New Zealand, and Australia — stated that the new round
should build on sectoral and trade liberalization undertaken since the Uruguay
Round and stressed that final results of all negotiations must be adopted in their
entirety by all WTO members. Specifically, the group called for worldwide elimi-
nation of chemical tariffs for all WTO members and proposed a phased approach
based on the level of existing tariffs. Furthermore, the ICCA called for the elimi-
nation of non-tariff measures, such as export licensing, quotas, dual pricing and
trigger price mechanisms, and discriminatory standards.
In addition, the ICCA called for the establishment of a global, balanced and bene-
ficial investment regime for all members of the WTO, advocated WTO rules for
trade facilitation, supported current WTO disciplines for anti-dumping, and sought
full implementation of the existing TRIPs agreement on intellectual property. The
ICCA also urged clarification of the relationship between multilateral environmental
agreements and WTO rules. We are attaching an overview of the ICCA statement
on the new round.
Conclusion
CMA looks forward to working with the Members of this Subcommittee as you
develop negotiating objectives for the upcoming WTO Round. In particular, we urge
you to consider approaches to renewing the President’s trade negotiating authority
so that ATL tariff reduction commitments and other early results can begin while
the round continues.
A new WTO round that combines early results with a single undertaking offers
new opportunities for tariff liberalization, market expansion, and the guarantee of
internationally accepted rules of fair trade. Without U.S. support of the WTO, its
agreements, and its ongoing negotiations, the U.S. chemical industry will lose the
benefits of free and fair trade, including export markets, and the U.S. economy will
lose the chemical industry’s significant contributions: export revenues, annual trade
surpluses, and highly skilled jobs.
International Council of Chemical Associations
Chemical Industry Strongly Supports New Trade Round, Tariff Elimination
Geneva, Switzerland, June 23 — Leading chemical trade associations today ex-
pressed strong support for a new round of multilateral negotiations in the World
Trade Organization (WTO), including the elimination of all chemical tariffs by all
WTO members.
The International Council of Chemical Associations (ICCA) meeting in Geneva,
urged that all chemical tariffs without exception be eliminated by all WTO mem-
bers. The group proposed a phased approach to tariff elimination, according to the
level of existing tariffs. Furthermore, iCCA called for elimination of non-tariff meas-
ures, such as import licensing, quotas, dual pricing and trigger price mechanisms,
and discriminatory standards.
ICCA said the new round should build on sectoral and regional trade liberaliza-
tion undertaken since the end of the Uruguay Round, and stressed that final results
of all negotiations must be adopted in their entirety by each WTO member. ICCA
also expressed its strong support for the WTO as an institution, and welcomes the
accession of new members to the WTO provided these countries adopt all the agree-
ments required for entry to the organization.
The ICCA hopes that the period leading up to the start of the new round will pro-
vide an opportunity to broaden tariff harmonization for chemicals through expanded
product and country coverage of the Chemical Tariff Harmonization Agreement, or
through other mechanisms which achieve at least the same results.
In addition, the ICCA called for the establishment of a global, balanced and bene-
ficial investment regime for all members of the WTO. The group advocated WTO
rules for trade facilitation, supported current WTO disciplines for anti-dumping, and
sought full implementation of the existing TRIPs agreement on intellectual prop-
147
erty. ICCA urged clarification of the relationship between multilateral environ-
mental agreements and WTO rules.
World chemical industry production exceeds US$1.6 trillion annually and almost
30% of this production is traded internationally. Within global trade in manufac-
turing, world trade in chemicals is second only to automobiles, far outpacing com-
puters and related technology in third place. The International Council of Chemical
Associations (ICCA) represents almost 80% of the world’s chemical production. It is
a coalition of the following chemical industry trade associations:
Asociacion Nacional de la Industria Quimica (ANIQ) [Mexico]
Canadian Chemical Producers’ Association (CCPA)
Chemical Manufacturers Association (CMA) [USA]
Conselho das Industrias Quimicas do Mercosul (CIQUIM) [Argentina and Brazil]
European Chemical Industry Council (CEFIC)
Japan Chemical Industry Association (JCIA)
New Zealand Chemical Industry Council (NZCIC)
Plastics and Chemicals Industry Association (PACIA) [Australia]
Chairman Crane. Thank you, Ms. Ambrose. And the advantage
of being there rather than up here is you are stuck up here.
Let me put my first question to you, Mr. Weiller. I was im-
pressed with the statistics here on small business. We had a Trade
Subcommittee hearing back in my district a couple of years ago,
and Illinois is the fifth largest export state in the country. We have
some giants there in my district like Motorola and Ameritech,
Sears, United Airlines, but next door to me are ones like John
Deere and Caterpillar down south. I always knew that they are
very aggressively involved in exports. What was revealing was that
better than 90 percent of the exports from our State of Illinois
came from companies employing 500 or fewer. And what is striking
is this top graph here of the increase, companies that do not export
in 1989 were almost half of them, 48 percent, and that has dropped
in 1998 to 22 percent. And I am sure it is still going down.
And the other thing is the revenues. I had no idea what a rich
market that is out there, that 9 percent of those exports earned 9
percent — 9 percent rather earned over 25 percent in profits and 11
percent earned between 11 and 25 percent. So it is a good market
out there. And getting that word out is one of the problems frankly
I think we have in trade in this country.
When I say getting the word out, I think we have not effectively
got our chief executive officers to communicate to their employees
that the company’s survival is dependent upon that world market
out there, and that means their jobs, and getting them in turn to
communicate that message to all of us, to our local district offices
or send us postcards down here on these trade issues, whatever is
involved. I was wondering if are there areas in the WTO negotia-
tions that will be particularly important for small businesses such
as your company? Have you got thoughts on that?
Mr. Weiller. Well, thank you for the opportunity. What you
were saying earlier about the percentage of business that is export,
and it shows at 75 percent small- and medium-sized, I expect the
number is actually larger. As an example, my company is an ex-
porter, and we have about 70 employees. But we use, purchase
services from other smaller companies sometimes, metal manufac-
turing, sometimes smaller electronics, circuit board manufacturers
and so on. And they in effect export but they don’t realize it. They
148
think they are just selling to a local company in the same town.
They don’t realize that 100 percent of what they manufacturer gets
assembled and shipped overseas as a export. So I suspect that
some of these numbers by the time you really get through become
much larger.
If the question is what is it that can be done to help exporters,
there are a number of things that are already being done. I recog-
nized my testimony was focused really on the areas that are really
impediments, the countries that are problem areas for everybody,
China and so on which have very high tariffs and so on. The truth
is that I really don’t feel that negative. I think a lot has happened.
I think it is very positive in the last 10 years. And in effect we
have — we are enjoying some of the benefits of fair trade already.
Again, focusing on those that I did in my conversation here, that
we need some help there because those are markets that are grow-
ing, and if we don’t get into them, I don’t mean just the small com-
panies, I mean the larger ones, we will lose, even after a trade
agreement is reached.
To give you a specific example, in some countries, for example,
in India, American consulting engineers are not present. You have
German consulting engineers. Well, once, if ever, India agrees to
liberalize all the infrastructure, development will continue to be
dictated by the German engineering companies. They will purchase
German products and American companies will be out of that. This
has happened in Vietnam from what I understand from other peo-
ple. So some of the effects of this is going to be very long, much
longer than after the trade barrier is officially opened.
Chairman Crane. Thank you, Mr. Warshaw, and, Mr. Lambert,
the U.S. Trade Representative has made proposals to make the dis-
pute settlement process more transparent and streamlined, and in
your view are these proposals, if enacted, satisfactorily, and what
else should the U.S. propose in the way of changes to the dispute
settlement process?
Mr. Lambert. We strongly support any efforts to strengthen the
dispute settlement mechanism. NCBA would also support consider-
ation of the carousel approach to changing the retaliation list peri-
odically to keep uncertainty in the system, to keep political pres-
sure in the system within the European Union to bring resolution
to this issue.
Other areas that we have suggested are things perhaps like a
bond or an escrow account to be set up when the initial ruling
comes into effect so there is an incentive for early settlement rath-
er than the premium on stall and delay, or possibly the amount of
injury could be set at the time that the reasonable period is deter-
mined with some type of a plus or minus in that injury amount de-
pending on the length of time that the process is dragged out.
But we wholeheartedly support any efforts to strengthen that
settlement process.
Mr. Warshaw. And we generally agree with Mr. Lambert, the
position of USTR right now is a good starting point. But the thing
that is important to us after the experience that we have been
through in the dispute settlement process is that each of the steps
can be relatively fast. You know reflecting back on a point that I
made before, remember in the case of the initial decision against
149
the European regime, it had taken them 3 months to put in place
the illegal regime but the WTO granted 15 months of, quote, “rea-
sonable” period to conform their system with WTO laws.
So as an example something that we would encourage of USTR
is to have a more speedy process, a more thorough process, some-
thing that more parallels the kind of activity that puts into place
the illegality. We would like to see fixed timeframes that are rel-
atively inflexible. We remember that we were supposed to see a
panel report most recently about 60 days before the final panel re-
port was issued. And every month counts in a situation like this.
And finally that in the situation where there is noncompliance,
that there be additional consideration given to punitive damages.
That would, in addition to the actual damage sustained, cause the
offending nation to act a little bit faster in bringing the situation
to its rectification.
Chairman Crane. The most vexing thing about the first 5 years
of the WTO’s operation has been the European refusal to respect
the dispute settlement findings against their restrictions on ba-
nanas and beef, and you suggest a carousel approach to retaliation.
Could you describe that in greater detail?
Mr. Warshaw. Let me give a little bit more dimension as I do
that to the reasons why we actually like the idea of the carousel
retaliation. The plain fact is this: There has been a list of European
products that there have been over $300 million of 100 percent du-
ties in place for some time now. It doesn’t seem like Europe minds
this very much. We think that Europe didn’t mind it because a list
like this has to be very, very carefully selected. It has to be tar-
geted against constituents who care, who will go to their govern-
ments, their members states, and complain and say “we can’t live
with this anymore.”
If you look at the lists both in the beef case and the banana case,
we haven’t seen any evidence that the constituents really care at
this point. So there is not an enormous pressure being borne by the
member states, hence the EU commission can take its time.
We think that the idea of carousel is effective because it affords
the possibility of going to alternatives as soon as you realize that
the selected products are not having the desired impact so that ef-
fective products can be targeted, the retaliation can be put in place
so that we can get the retaliation over with as quickly as possible.
That is the objective. Not to live with retaliation but to get it over.
We see carousel as something that makes it move faster.
Mr. Lambert. I think we would concur. Our objective has never
been retaliation. That gains the beef industry nothing. It distorts
trade, stops trade. Our objective is to bring enough pressure to
bear within the community to bring about a change in the regula-
tions and to gain access to that market.
In our case, there was an initial list $900 million worth of prod-
ucts published. Our final retaliation is $116.8 million. If all of those
commodities and all of the countries were uncertain if their com-
modities were next on the list, that would keep them in the game,
keep their pressure in the system to bring about a change of policy.
Chairman Crane. Thank you.
Mr. Levin.
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Mr. Levin. Thank you, Mr. Chairman. I am sorry, I was in the
Rules Committee for part of your testimony and I missed it. But
we will review it carefully. And the next panel, Mr. Chairman, has
heen here a long time. So I will refrain from questioning, just to
comment we should hear your urgings that the dispute settlement
process he more effective and the WTO therefore he more effective
and relevant.
I only urge that when other sectors urge the same or when peo-
ple want to bring in other related trade issues, you have the same
open mind or better than that, encouragement. Any way, we wel-
come your testimony.
Thank you very much, Mr. Chairman.
Chairman Crane. Thank you.
Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman. And thanks for the
testimony today.
In response to the Chairman’s questions you have given me most
of what I was going to look for in the question and answer period.
So if I could delve a little deeper into the topic of why you think
in this case, beef and bananas in this particular, that the Euro-
peans have not been willing to comply with, in this case, very clear
dictates from first GATT, we had two GATT decisions in the ba-
nana issue, and the beef case there was a clear and unequivocal
legal decision, then several WTO decisions. And I guess rotating in
carousel seems to make sense to me but I would wonder if we could
step back and think why do you all believe they are not complying
and then maybe we would know better whether carousel would be
effective.
Mr. Lambert.
Mr. Lambert. I think in the case of beef and in agriculture in
general, Europe is heavily subsidized. They do not want the com-
petition. We feel that we could be very competitive in the market
from a price standpoint and a quality standpoint. We have always
viewed this as much more protection for the domestic industry in
the European Union than a consumer concern.
We are willing to label our product and let the consumer make
the choice. So from our viewpoint it is the fact that they are heav-
ily subsidized and any technology or any competition to that sys-
tem just increases the cost of their subsidy system.
Mr. Portman. So as an economist you would look at this as this
is just the cost of doing business. In other words, they are already
so heavily subsidized why not subsidize it a little more, which is
in effect absorbing the retaliation.
Mr. Lambert. We have said we would cash out the retaliation.
Mr. Portman. Do you think rotation would be effective then in
dealing with the problem given the fact they are willing to absorb
these losses?
Mr. Lambert. We feel that it would increase the political pres-
sure within the system. Whether that would be adequate given all
the constraints and the political system that they have to deal
within the European Union, I am not sure. But we would like to
give it a try.
Mr. Portman. The American Farm Bureau has been supportive.
I spoke to the Farm Bureau president after his testimony because
151
I didn’t have a chance to ask him questions, hut he indicated that
he thought carousel was a good idea. And his response was sort of
one of frustration that, you know, how else are we going to he able
to get at this without being able to rotate and find more politically
sensitive industries and businesses.
Mr. Warshaw.
Mr. Warshaw. Well, first of all I concur with that point. Con-
gressman, that the rotation is absolutely necessary. Until we target
the right products it will not be effective. To get the retaliation
over is the first thing that we want to do, as I mentioned.
I think that you asked two questions. One is why the EU is not
agreeing to a future implementation that is WTO compatible. I
think the answer is that in the case of bananas at least we have
a situation where it has been ruled on that this licensing system
under the tariff rate quota that grants licenses illegally needs to
be disbanded, that people who had the historical access to market
under WTO rules must be given continued access under a licensing
regime. So in fact why they don’t want to come up with a system
that is WTO compatible is that they lose their illegally gotten li-
censes and therefore the illegal profits that they carved out for Eu-
ropean interests.
Interestingly enough, the Europeans comment from time to time
that the cocomplainants, the United States and the five Latin gov-
ernments are not in agreement on a solution. In fact that is not the
case, that if you interview each of the governments that were plain-
tiffs in the case, you would find that they all agree that a tariff
rate quota that is properly constructed will conform with WTO’s
norms.
The why are they not complying sooner aspect of the question is
just simply that they are still making money and they don’t have
an incentive to stop making that money. And until someone clamps
down, they will continue to earn those illegally conceived profits.
Mr. PORTMAN. When will they realize that? I guess my final
question would be, and it is to both Mr. Lambert and Mr.
Warshaw, do you think that the EU properly understands that re-
taliation will not be lifted until the U.S. industry receives some re-
lief? Is that message clear to the Europeans? And if not, what can
this Congress do to make that message very clear?
Mr. Lambert. From our viewpoint I think it is clear, although
they seem to hold out some false hope that they will offer some
type of a compensation package that will be acceptable and will en-
tice us to removing retaliation. So I think as much to the degree
that we can send a united message from the Hill as well as from
the administration, that it is very important that the European
Union comply with the rulings, if for no other reason than for the
sake of the WTO as a dispute settlement mechanism, and that
sooner or later they will win a case and they would not want to
be treated the way that we have been treated in this instance.
Mr. PoRTMAN. Mr. Warshaw.
Mr. Warshaw. I have been told by senior members of the Euro-
pean Commission that they understand that the retaliation will not
be lifted and I will tell you that they don’t seem to mind. They
have taken their time. It is a deliberate schedule. The rulings came
out as you know in April, and we are still sitting with the fact that
152
the commission has said that come September 9 they will make a
proposal and all of the proposals that they have made in the mean-
time, that they put out to the trade, and to us for that matter are
illegal under WTO law.
Mr. PORTMAN. If there is anything we can do to make it clear
that we in the U.S. Congress and the USTR and the industry are
one with regard to this strong message that unless there is compli-
ance there will not be backing down on retaliation, it would be
helpful. So you need to let this Subcommittee know and this Chair-
man know.
Thank you, Mr. Chairman.
Chairman Crane. Mr. Becerra.
Mr. Becerra. I want to just thank the witnesses and thank them
for being so understanding of the time. And I will withhold on any
questions. Yield back.
Chairman Crane. Mr. Watkins.
Mr. Watkins. Thank you, Mr. Chairman. Thank the panel. You
know, Mr. Portman and I, banana and beef guy, it seemed like this
was a threshold on some decisions and not getting things done
under the WTO. Because WTO overall has ruled about 29 times in
our favor. So when you look at the overall situation, Mr. Portman,
I don’t know why they selected bananas and beef, not really put
some teeth in it — Mr. Warshaw, you are talking about — because
they don’t seem like they mind. And same thing with beef They
don’t seem like they mind about that.
So, it is going to be an interesting situation to see what WTO
does. And let me just say, their credibility is at stake. We got to
have and need a WTO, but I can say in the beef case, and I know
Mr. Portman will speak more detail and knowledgeable about ba-
nanas, he and I have talked going back and forth lots of times
about the bananas and about beef, but in the case of beef, it has
been a disaster in my opinion. And I have talked to a lot of cattle-
men. When you think 10 years ago they started banning beef, and
the long delay. And then after that period of time, a lot of my cattle
people felt like it was losing about a $500 million market. But they
were also willing to come down and say well, hey, 250 million. And
then we projected, say we, U.S. Trade Representative, projected
$205 million dollar loss, and then by the time they got through the
WTO settlement, out about $116 million.
Rob, that is less than bananas. I didn’t know that. But, you
know, but look at that, and you think, my gosh, we are not very
strong in trying to get our point across.
And I hope Mike Moore will insist on a stronger following of the
WTO rules and where we are. But, you know, this becomes quite
alarming. We know there is a group in the Congress, they don’t
fast track, they don’t want any kind — the fear is out there. You
couple that with what has happened to bananas and beef, and put-
ting some things in jeopardy, I think we have got to see a stronger
position along the way there.
Both have mentioned about subsidies. I totally agree. You know,
it is subsidy structure in the European Union I think we need to
go after a great deal. Now, a lot of people do not know we do not
receive subsidies in the cattle industry. It does in the crops and
things like that, but we do not have that subsidy in cattle, but yet
153
you look around and you see the overall budget of ECU, 70 percent
or so is utilized for agriculture, not only just to subsidize to produc-
tion, but also in necessary taking losses in order to capture mar-
kets around the world. Somewhere we got to address that fact.
And also, that doesn’t count the subsidies from the individual
countries within the ECU. So you look at that. And that is why I
talk about fairness. We have got to get the teeth in that and I have
a lot of high hopes and hope that we can do some things to rec-
oncile that. But, right now, as one who has fought this battle and,
like I say, it is not a fly by-night thing for me, and it is not a polit-
ical thing. My roots go deep in agriculture, and the cattlemen are
probably my closest friends in the State of Oklahoma. I know there
is no — they are so independent. They stick it out through thick and
thin, drought, everything else. And I just cannot sit idly by when
they are really totally feeling the effects of it in a big way.
So I just want to thank both of you for being here, all three of
you for being here and presenting this case. I think it is so timely
and important, and I guess I keep saying the credibility, it could
be in jeopardy next spring with the resolution coming from Con-
gress if things do not turn around. We need to make sure that we
get out and try to see what we can get done. We got to have the
fairness here.
Mr. Chairman, I might just say one more thing. I have such
strong feelings about trade and you and I have shared that. I was
thinking a little earlier, back when I was a youngster in De Queen,
Arkansas about 4 years of age I used to come to town with my
grandpa. Grandpa Johnson in a wagon, we had a rick of wood in
the back of the wagon, and he had a horse and a mule usually tied
or a horse or mule or combination of them tied on the back of the
wagon. It was always a big day, Mr. Portman, when we did that
on Saturday because we always went to the square in De Queen,
Arkansas.
And I would sit there in under the shade trees with him as my
grandpa would negotiate the trade of that mule and horse and sell-
ing or trading of that rick of wood for something else. And I always
wondered about grandpa, because at home he had, Mr. Chairman,
a box, a bolo knife. Any of you know what a bolo knife is? A hole
knife, that was the thing back then, but I was always so thankful
when he got to the point of making that trade he would say, I will
pitch in a bolo knife to boot to make it work. You may not have
heard the word to boot in a long time. But I know that was going
to sink that trade. And what it really meant was that grandpa was
going to go by the drugstore and we were going to get root beer on
our way back. Nary a nickel, all we could drink.
I look back and I think we need some bolo knives. We need to
get some teeth in flnalizing some of these agreements to make sure
we can make it happen for the United States of America. Our fu-
ture is at stake. Our children’s future is at stake. I want not only
Oklahoma but I want the United States to be the leader in the
world.
Thank you, Mr. Chairman.
Chairman Crane. Thank you, Mr. Watkins. And I want to thank
our panel for their participation in this effort. And it will be ongo-
ing. This is not the only day we are going to have hearings on this
154
subject but your input is extremely valuable to us, and we would
appreciate even when you are not here present, in person, please
keep the chain of communication going to us. We need all the input
we can get.
And with that, this panel is in recess, and our next panel I hope
is here. Let me call up first in the next panel though, David Smith,
director. Public Policy Department of the American Federation of
Labor and Congress of Industrial Organizations. David was tied up
at another hearing where he was testifying, so we will have him
as our first witness in the next panel. And then Charles Lake, vice
president, American Family Life Insurance Co., on behalf of the
American Council of Life Insurance; Gilbert Sandler, senior part-
ner, Sandler, Travis & Rosenberg, on behalf of the Washington
International Assurance Co., Itasca, Illinois; Rhett Dawson, presi-
dent, Information Technology Industry Council; and Sheldon R.
Jones, director, Arizona Department of Agriculture in Phoenix.
We will proceed first with you, David, and then the other wit-
nesses in succession.
STATEMENT OF DAVID SMITH, DIRECTOR, PUBLIC POLICY DE-
PARTMENT, AMERICAN FEDERATION OF LABOR AND CON-
GRESS OF INDUSTRIAL ORGANIZATIONS
Mr. Smith. Mr. Chairman, Members of the Subcommittee, I
apologize for not having gotten back here for the last panel. I
thought everything would work perfectly, that I would testify at
the Judiciary Committee and get back here. Of course I made a
misjudgment and apologize.
Chairman Crane. And in this town nothing works perfectly,
David.
Mr. Smith. Well, I appreciate your indulgence. Let me try to re-
ciprocate by being brief. You have my written testimony and I
would appreciate that it could be placed into the record.
Chairman Crane. All oral testimony, if you can all try and keep
it to about 5 minutes, all written testimony will be made a part of
the permanent record.
Mr. Smith. I will do that. On behalf of our 14 million members,
we certainly appreciate the opportunity to testify today. The sub-
ject that you are talking about is of enormous importance. It is of
enormous importance not simply to working people here but to
working people around the world.
The tone I want to set really has two dimensions. I want to talk
specifically about the negotiating agenda. But we need to pay at-
tention to a second point that Mr. Watkins was making as I was
coming in I think it is a fundamental point. This system is not
working well enough for us to have any assurance that it will en-
dure, and we can’t underscore that point too firmly. I think about
the last 30 years, a period of enormous increase in global integra-
tion, trade has increased several times in orders of magnitude as
a share of our GDP and others, but these last 30 years have been
marked by the slowest periods of growth internationally in the
postwar era. They have been marked by increasingly violent and
increasingly volatile financial crises, some of which we are still
feeling the effects of. Income distribution has worsened, both inside
of countries and among countries. This is hardly a track record
155
which suggests that the evidence is unequivocal that greater global
integration, more trade, more open markets, more financial inte-
gration is necessarily good for people.
In the real world, in the world where people get up in the morn-
ing and go to work for a living, where people make a commitment
to an employer and expect to have that commitment honored, in
the world where developing countries are struggling to find a place
in the international system, but see their currencies come under at-
tack, their standards of living destroyed overnight, tens of millions
of Indonesians thrust back into poverty, at the stroke literally of
an arbitrageur’s computer, we ought to be very cautious about
whether or not the kind of support we need for an increasingly in-
tegrated global system will endure.
Part of what is missing, part of what is missing from this system
is decent and fully cognizant respect for the other half of the eco-
nomic equation, the half that is provided by people who work for
a living. We provided a lot of protection for people who own intel-
lectual property, we provided a lot of protection and intend to pro-
vide more for people who trade financial instruments. We provided
a lot of protection for people who own real property. But we failed
to meet our obligation to people who work for a living.
The WTO agenda needs to begin in Seattle by asking two ques-
tions. The first question that it ought to ask is: What have we
learned during the last 30 years, not simply in the 5 years since
the WTO has been in existence, but what have we learned during
the last 3 decades in which this grand project of global integration
has proceeded so rapidly? How do we explain and understand and
take measures that correct the fact that income distribution hasn’t
improved, it has deteriorated; that financial stability hasn’t become
the norm, in fact financial instability has become the norm. And
how do we address the question facing many workers in this coun-
try, Mr. English and others raised it this morning, of the trans-
mission belt of trade, transmitting our failures internationally, our
failures in the international financial system into domestic labor
markets, into domestic product markets and resulting in great dis-
ruption here in the steel industry, in the garment industry, and the
electronics and auto parts industry.
The WTO agenda ought to begin with saying let’s take a deep
breath, let’s step back, let’s take a look, let’s try to understand
what has happened.
Second, the WTO ought in Seattle to build on a commitment it
made at the last ministerial in Singapore regarding worker rights.
The worker rights that I am talking about are what have come to
be known as core worker rights. They are reflected in the ILO Dec-
laration on Fundamental Principles and Rights at Work, adopted
with the strong support of our government a year ago in Geneva.
That establishes a set of not quantitative, not arithmetic rights,
but a set of human rights.
It argues that human beings ought to have the right to freedom
of association, meaning that they ought to be able to join a trade
union if they wish without interference either from an employer or
a government; that they ought to have the right to collectively bar-
gain; that we ought to outlaw child labor, that we ought to get
kids, wherever they live, in school so that as they grow they can
156
become real contributing members of their country’s economy; that
we ought not to use prison labor illegally producing goods at prices
that obviously distort labor markets because the men and women
who are incarcerated that are producing goods for the commercial
marketplace aren’t compensated; that these rights ought to be hon-
ored in our trading system because the absence of these rights is
itself a distortion.
We think about distortions as if they were only in the form of
monetary distortions, subsidies on the one hand or some inappro-
priate set of nontarifif barriers to the movement of goods in the
economy. In fact, the denial of these basic human rights is a distor-
tion and a distortion which creates severe consequences both for
the people whose rights have been denied and those who are forced
to compete against goods produced in countries where the compara-
tive advantage is the increased ability to degrade labor or to de-
spoil the environment.
We ought to take another step in Seattle and we ought to take
the step, and you discussed it a bit with Ambassador Esserman
this morning, of making concrete the obligation for candidate mem-
bers, those seeking accession to the WTO, making concrete what
we said in Singapore in general, which is that all countries accept
these standards and commit themselves to honoring them.
I want to just briefly say the market access questions that you
spent some time on this morning are things that we support. It is
an agenda that we think ought to be pursued. But I want to em-
phasize the other things I have talked about, and, last, there is an
enormous need in the dispute settlement mechanism, in the pro-
ceedings as the WTO considers both the built-in agenda and new
items on the negotiating agenda, there is an enormous need for
greater transparency and access for working people, for citizens’
groups of all kinds.
So that what — much too often in reality as well as in character-
ization, what is described as a closed club of international elites be-
comes an organization which people can understand, can get at,
and can influence in the ways that mean so much to their lives.
Thank you very much.
Chairman Crane. Thank you.
[The prepared statement follows:]
Statement of David Smith, Direetor, Publie Poliey Department, Ameriean
Federation of Labor and Congress of Industrial Organizations
Mr. Chairman, members of the Subcommittee, thank you for this opportunity to
present the views of the AFL-CIO on this important topic. I will summarize my com-
ments here and submit my written testimony for the record.
As the 20th century draws to a close, the global economy is still reeling from the
turmoil unleashed by a series of serious financial crises. A quarter of the world
economy remains mired in recession, and sluggish growth in much of the rest of the
world calls into question prospects for rapid global recovery and improving living
standards for the majority of the world’s workers. While increased global integration
has brought growth and dynamism to some sectors and to some corporations, its
downside has become more apparent and more troubling.
Long-term trends toward growing global inequality continue, both between and
within countries. In sub-Saharan Africa and in many other of the poorest countries,
per capita incomes are lower today than they were in 1970. The gap between per
capita incomes in countries with the richest fifth of the world’s people to those with
the poorest fifth widened from 30-to-l in 1960, to 60-to-l in 1990 and to 74-to-l
in 1995. Meanwhile, the richest three people in the world have assets greater than
the combined incomes of the 600 million people living in the 48 poorest countries.
157
Most American workers have not benefitted from global integration either. Real
wages have stagnated or declined for the majority of American workers, while the
wealthy few have reaped disproportionate gains.
The economic and political power of transnational corporations has become in-
creasingly concentrated, both through mergers and acquisitions and, in some indus-
tries, through rapid growth. Dramatically unequal access — between men and
women, among English and non-English speakers and among countries — to tech-
nology, education, and Internet connections will exacerbate these trends.
In tbe United States, fundamentally misguided trade policies have resulted in bal-
looning trade deficits, the loss of hundreds of thousands of high-paying manufac-
turing jobs and a system of international rules that has undermined domestic meas-
ures designed to protect human rights and the environment. Trade agreements have
opened our markets while leaving in place other countries’ barriers; they have em-
powered multinational corporate giants while leaving workers and communities to
fend for themselves in an increasingly bitter global competition for scarce jobs and
investment.
Chronic and growing U.S. trade deficits have led to a massive international debt
that is not sustainable in the long run. The underlying problems must be addressed,
or these trade imbalances will bring the current economic boom to an abrupt halt.
If we do not fundamentally change U.S. policies and the policies of the inter-
national institutions in which the U.S. government plays such an important role,
we will continue to lose good jobs, our trade deficit will continue to soar, inequality
will continue to grow, corporate power will become more concentrated and the
world’s poorest nations will fall further behind. The American people will — and
should — reject a policy of global engagement that comes with these costs. There is
an alternative.
America’s unions are committed to a new internationalism focused on building
international solidarity around a progressive, pro-worker, pro-environment, pro-com-
munity international economic policy.
Global Turning Point
The global community stands at an important turning point — key decisions will
be made in the near future, both in the global policy arena and by national govern-
ments. In November, the world’s trade ministers will consider whether to launch an
ambitious new round of negotiations and what such negotiations should address.
The international financial institutions are under pressure to reevaluate the condi-
tions they impose on developing countries in exchange for loans and financial assist-
ance, in the wake of the Asian financial crises. The U.S. political system is stale-
mated with respect to new trade negotiating authority, unable to build consensus
around traditional trade bills.
We should use this moment to pause and take stock of globalization so we can
begin to repair the damage that has been done by misguided and careless policies.
After several decades of tearing down trade barriers and increasing the mobility and
flexibility of direct investment as well as speculative capital, we need to take an
honest and careful look at the results. What has been the impact of current trade
and investment liberalization policies on development, income distribution, financial
stability and American workers? Have we struck the right balance between the need
for global rules and the scope of domestic regulation on public health, the environ-
ment and human rights?
Current Rules Have Failed
We believe that the current framework of global rules has failed miserably on
many crucial counts. The international financial system has promoted policies that
left many developing countries vulnerable and unprepared in the face of currency
volatility and unpredictable swings in speculative capital flows. The result was
thousands of bankruptcies and suicides, and tens of millions of people losing their
livelihood and falling into desperate poverty. The international financial institutions
pressured crisis countries to export their way out of their problems — exacerbating
deindustrialization and a rising trade deficit here in the United States.
Trade and investment rules have focused on guaranteeing the mobility of goods,
services and capital across borders without giving adequate attention to the social
impact of liberalization. In doing so, they have strengthened the power of corpora-
tions bargaining with their workers, as well as with national and state govern-
ments.
But these trade and investment policies have done nothing to discipline illegal
and anti-social behavior by corporations and governments competing in a fiercely
competitive global economy. As a result, American workers have found themselves
increasingly in head-to-head competition with workers in other countries who lack
158
basic human rights, and legitimate national regulations protecting the environment,
consumer standards and workplace health and safety have been challenged as dis-
guised restraints on trade.
Development policy has been inadequate, inefficient and misguided. If the global
economy does not generate more equitable outcomes in the developing world, then
the entire global system will become increasingly unstable and unsustainable. We
must use trade and investment agreements to reward those governments that re-
spect workers’ rights, protect the environment, and allow democracy to flourish, not
those that create the most hospitable climate for foreign investment, regardless of
social concerns.
WTO Priorities
When the world’s trade ministers gather in Seattle later this year, the U.S. gov-
ernment should insist that the WTO take concrete steps to achieve the following
goals:
• Review the impact of trade liberalization on income distribution, economic de-
velopment and financial instability before launching major new negotiations.
• Incorporate enforceable rules on core labor standards (including the freedom of
association, the right to bargain collectively and prohibitions on child labor, forced
labor and discrimination in employment).
• Establish accession criteria requiring that new WTO members are in compli-
ance with core workers’ rights.
• Overhaul existing rules to strengthen national safeguard protections in the case
of import surges and ensure that trade rules do not override legitimate domestic
regulations. It is essential that WTO rules not infringe on the ability of national
or state governments to use their purchasing power to protect human and workers’
rights.
• Ensure that WTO rules do not create pressure on governments to privatize pub-
lic services.
• Carry out institutional reforms, enhancing transparency, accountability and ac-
cess, so that citizens can understand the basis for WTO decisions, as well as provide
meaningful input to this process.
• Provide more technical and legal support to developing countries so their par-
ticipation in negotiations is not hampered by lack of resources or technical expertise.
In addition, the AFL-CIO believes that new negotiations on investment and com-
petition policy are headed in the wrong direction — toward shoring up the rights of
investors at the expense of other members of civil society and U.S. laws.
Coordinating the Work of the International Organizations
The AFL-CIO supports the International Labor Organization’s (ILO) 1998 Dec-
laration on Fundamental Principles and Rights at Work and urges the ILO to move
forward speedily with a strong and energetic follow-up mechanism. Now that the
ILO and the international community have succeeded in building consensus around
the universality and importance of the core labor standards, it is crucial that these
core standards be incorporated into the work of the other international organiza-
tions, including the WTO, the International Monetary Fund (IMF), and the World
Bank
The IMF, the World Bank and the regional banks must fundamentally rethink the
conditionality they impose on developing countries. Rather than forcing austerity,
privatization, deregulation, export-led growth, trade and investment liberalization
and weakening of labor laws, the international financial institutions must empha-
size domestic-led growth, democratic institutions and the observance of core labor
standards.
The international financial institutions and the governments of the industrialized
countries must take urgent steps to grant deep debt relief to the least developed
countries that are in compliance with core labor standards so these countries can
meet the basic human needs of their populations and lay the foundation for future
growth.
The Economic Imperative
The current regime of international trade and investment rules has failed on eco-
nomic as well as moral terms. Aggregate global growth is slowing, not accelerating.
Global inequality is growing. And many of the nations heralded in the recent past
as stars of the global economy have found that repressing political dissent, stifling
an independent labor movement and concentrating economic and political power in
the hands of the corrupt few do not provide a basis for long-term growth and sta-
bility.
159
The AFL-CIO is facing the challenges of the global economy in three ways: by
building international solidarity, working to change the rules of the global economy
and fighting on the home front to build strong, effective unions and ensure that
workers have a voice in the national political debate.
Thank you for your time and attention. I look forward to answering any questions
you may have.
Chairman Crane. Mr. Lake.
STATEMENT OF CHARLES LAKE, VICE PRESIDENT AND COUN-
SEL, AFLAC JAPAN, ON BEHALF OF AMERICAN COUNCIL OF
LIFE INSURANCE, AMERICAN INSURANCE ASSOCIATION,
HEALTH INSURANCE ASSOCIATION OF AMERICA, INTER-
NATIONAL INSURANCE COUNCIL, AND THE REINSURANCE
ASSSOCIATION OF AMERICA
Mr. Lake. Mr. Chairman, I am Charles Lake, vice president and
counsel of AFLAC Japan. AFLAC is the largest foreign financial
services company in Japan in terms of profits, and the second most
profitable foreign company of any industry in Japan. AFLAC now
insures almost 25 percent of Japan’s overall population.
My testimony is presented on behalf of the American Council of
Life Insurance, the American Insurance Association, the Health In-
surance Association of America, the Reinsurance Association of
America, and the International Insurance Council where I serve on
the board of directors. Collectively, these associations represent the
major U.S. insurance and reinsurance companies with inter-
national operations.
As a former USTR negotiator involved in the completion of the
General Agreement on Trade and Services, I am very honored to
appear in front of this distinguished Subcommittee to present the
insurance industry’s views regarding the negotiating objectives for
the WTO Seattle Ministerial.
U.S. insurance providers are among the most competitive in the
world. Our cutting-edge products, services, and technologies allow
us to offer customers the highest quality products in the world at
competitive prices when the playin^eld is even and a fair competi-
tion is permitted. Today I wish to address how our industry be-
lieves the WTO 2000 round of negotiations can enhance our ability
to compete overseas while encouraging sound and consistent regu-
lation that protects policyholders.
In the upcoming WTO services negotiations, the insurance indus-
try believes that all WTO countries should commit to procom-
petitive regulatory principles — sound insurance regulation that al-
lows free and fair competition.
GATS recognizes the right of its signatory jurisdictions to regu-
late their domestic service industries. Regulations should be justi-
fied by an objective and clearly defined need, not by whim or do-
mestic political circumstances. Unfair and unequal regulatory re-
quirements and restrictions often deny foreign firms the oppor-
tunity to compete on an equal basis with local firms. In addition,
lack of transparency can provide the domestic industry with a dis-
tinct and unfair competitive advantage. A detailed explanation of
160
all of our insurance regulatory principles is contained in my full
written statement.
With my remaining time I would like to highlight several key
points that we feel are particularly timely and appropriate with our
priority emerging markets.
Solvency and prudential focus: Regulation should focus on ensur-
ing that institutions meet reasonable solvency and prudential re-
quirements as the primary means of protecting consumers. In most
cases governments should allow the markets to determine the most
effective products and pricing of those products in a competitive
regulatory environment that encourages innovation and product di-
versity.
A transparent legal, administrative and regulatory environment:
Standards, requirements, and codes of practice need to be promul-
gated with consultation, full documentation and accessibility to all
market participants. Regulators should be impartial and an inde-
pendent government entity.
Income security: The U.S. insurance industry supports the devel-
opment of a WTO mechanism that encourages global pension re-
form based on free market principles with sound regulation and tax
treatment that encourages citizens to offset the forecasted large
gaps in public expenditures.
Access to international reinsurance markets: All insurers, domes-
tic and foreign, should have access to the international reinsurance
market with cross-border transactions authorized and monopolistic
mandatory cessation requirements prohibited.
Taxation stability: The agreement should require the scheduling
of all future taxation of insurance products.
Improving definitions: USTR should determine the extent to
which all United States insurance industry export product lines are
currently covered by existing definitions.
Dispute settlement: The U.S. should work to ensure that the
WTO dispute settlement process provides a meaningful mechanism
to challenge practices that are inconsistent with all current and fu-
ture commitments.
In conclusion, while these principles are ambitious, they are in-
tended to build on the Financial Services Agreement so that the
WTO 2000 negotiating objectives will not only improve traditional
market access commitments, but improve regulatory standards to
foster financially sound and competitive insurance markets world-
wide.
Our European insurance industry colleagues support these policy
objectives. We are currently working with our Latin American and
Asian counterparts to gain their support as well. Also we have
begun consultations with U.S. State regulators and their inter-
national counterparts to seek their support for our mutual objec-
tives. We believe we have a historic opportunity to improve our
ability to provide our products and services to the people of the
world, and we look forward to working with the Congress as well
as international trade negotiators to achieving these objectives.
I thank you, Mr. Chairman and Members of the Subcommittee,
for this opportunity to outline our negotiating objectives for the
WTO Seattle Ministerial, and I would be pleased to answer any
questions you may have.
161
Chairman Crane. Thank you, Mr. Lake.
[The prepared statement follows:]
Statement of Charles Lake, Vice President and Counsel, AFLAC Japan, on
behalf of American Council of Life Insurance, American Insurance Asso-
ciation, Health Insurance Association of America, International Insur-
ance Council, and the Reinsurance Asssociation of America
Mr. Chairman, I am Charles Lake, Vice President and Counsel of AFLAC Japan.
AFLAC is the largest foreign financial services company in Japan in terms of prof-
its, and the second most profitable foreign company of any industry in Japan. My
testimony is presented on behalf of the American Council of Life Insurance, the
American Insurance Association, the Health Insurance Association of America, the
Reinsurance Association of America, and the International Insurance Council, where
I serve on the Board of Directors. Collectively, these associations represent the
major U.S. insurance and reinsurance companies with international operations.
As a former USTR negotiator involved in the completion of the General Agree-
ment on Trade in Services (GATS), I am very honored to appear in front of this dis-
tinguished committee to present the insurance industry’s views regarding the nego-
tiating objectives for the WTO Seattle Ministerial.
U.S. insurance providers are among the most competitive in the world. Our cut-
ting edge products, services and technologies allow us to offer customers the highest
quality products in the world at competitive prices when the pla3dng field is even
and fair competition is permitted. AFLAC has built upon product knowledge and un-
derwriting expertise learned in the U.S. and created in 1974 an entirely new cat-
egory of products in Japan. AFLAC now insures almost 25% of Japan’s overall popu-
lation.
AFLAC Incorporated is a Fortune 500® company which insures more than 40 mil-
lion people worldwide. AFLAC was ranked as the top insurance company in Forbes
Global Business & Finance magazine’s “A-plus” list of the world’s best companies.
AFLAC’s experience is often used in MBA curriculums as an example of what U.S.
companies can do if they take their unique and innovative products overseas.
When allowed to fairly compete in foreign markets, our industry provides substan-
tial benefits to foreign consumers and economies, to domestic policyholders through
increased financial resources and risk diversification, to stockholders, and the U.S.
services trade surplus through return on investments. Since the U.S. market’s abil-
ity to absorb our wide range of insurance products is limited, an increasing number
of life pension and annuity, property and casualty, reinsurance and surety compa-
nies have significantly stren^hened their commitment to conducting business over-
seas or have for the first time established an international presence to begin offer-
ing their products outside of the U.S. This trend will only intensify, in part because
of the success of the upcoming WTO round. In that regard, we deeply appreciate
the Committee’s leadership in establishing tax policy that supports U.S. trade pol-
icy. The extension of the exemption from Subpart F for active financing income is
crucial in allowing U.S. financial companies, in general, and insurance companies,
specifically, to compete in the global marketplace.
Today I wish to address how our industry believes the WTO 2000 Round of Nego-
tiations can enhance our ability to compete overseas while encouraging sound and
consistent regulation that protects policyholders, and increases trust in the private
insurance industry. In the upcoming WTO services negotiations, the insurance in-
dustry believes that all WTO countries should commit to pro-competitive regulatory
principles — sound insurance regulation that allows fair and free competition.
The December 13th 1997 WTO Financial Services Agreement, created the first
multilateral, legally enforceable, and permanent agreement covering insurance
trade and investment. The agreement is designed to reduce and/or eliminate govern-
mental actions that prevent financial services, including insurance, from being free-
ly provided across national borders or that discriminate against foreign-owned fi-
nancial services firms. When it came into force on March 1, 1999, the agreement
created a floor of specific insurance market access, national treatment, and trans-
parency commitments, below which countries will not be able to act without facing
binding adjudication and sanctions. However much more liberalization needs to
occur.
The WTO’s GATS has a built-in requirement for progressive liberalization nego-
tiations, the first of which must begin no later than January 1, 2000. In contrast
to the 1997 negotiations on basic telecommunications and financial services, these
negotiations will cover a large spectrum of sectors. Since this is the beginning of
a new round, the negotiating format and structure of the agreement are now open
to redesign. My industry colleague. Dean O’Hare, Chairman of the Coalition of Serv-
162
ices Industries, will address the overall services negotiations, so I will limit my com-
ments to our insurance-specific objectives and consensus building activities to pro-
mote sound, pro-competitive insurance regulatory principles.
GATS recognizes the right of its signatory jurisdictions to regulate their domestic
service industries. Many services are regulated by governments to ensure the funda-
mental goals of consumer protection and guarantee the supply of services to con-
sumers. These fundamentals are not disputed by the U.S. private sector, although
there are different ways of ensuring such fundamental goals through regulation.
Some of these ways will be more restrictive than others. Regulations should be justi-
fied by an objective and clearly defined need, not by whim or domestic political cir-
cumstances.
An essential element of true financial services liberalization should be the global
development of pro-competitive regulatory principles. Open, well-regulated service
markets are the necessary foundation for a country’s ability to compete in global
markets for goods, agriculture and services. Market access alone does not guarantee
liberalization.
We believe that the negotiations should continue to focus primarily on market ac-
cess and national treatment needs. However, they should also focus on another sig-
nificant barrier to trade that transcends both market access and national treatment
objectives — burdensome regulatory systems that can serve as major impediments to
free trade.
While traditional market access and national treatment liberalization commit-
ments are a significant step toward market liberalization, these principles alone do
not assure fair competition. Unfair and unequal regulatory requirements and re-
strictions often deny foreign firms the opportunity to compete on an equal basis with
local firms. In addition, a lack of transparency, combined with uneven enforcement
of regulations, can provide the domestic industry with a distinct and unfair competi-
tive advantage.
Regulation of financial services markets must protect consumers; however, some
regulatory systems may actually deprive consumers of better products, lower costs,
and improved service. For example, restrictions on the types of products that can
be offered by a company or unreasonably lengthy product approval procedures pre-
vent firms from introducing new products or developing products that are tailored
to the needs of local customers. Moreover, restrictions on the pricing of products
limit the ability of companies that are run more efficiently to offer consumers better
prices. Other types of regulations that prevent foreign firms from competing fairly
with local businesses include: exchange controls, deposit and lending rate ceilings,
investment restrictions, qualitative lending controls, privileged access to credit, and
restrictions on business powers.
Lack of regulatory transparency is another barrier to fair and open competition
in financial services. In some countries, regulations are not published in a way that
is easily accessible to all businesses. In other countries, the process for developing
regulations is opaque and there is no opportunity for local private sector input. Even
if the regulations are available, the inconsistency of enforcement (or even non-en-
forcement) against local firms can handicap foreign competitors. Financial services
firms that dutifully comply with domestic regulations simply cannot compete fairly
or successfully with local companies that can lower costs by ignoring those same
regulations. Political interference in the development and implementation of regula-
tions adds yet another impediment to fair competition as local leaders intervene on
behalf of local businesses, often resulting in disparate regulatory treatment for a
foreign firm.
It is a difficult task to draw a clear line between market access issues, national
treatment concerns and domestic regulation principles. Countries may disguise a
market access issue, such as restricting new products under domestic regulation ar-
guments, by characterizing it as consumer protection. It is the role of the private
sector to assist government negotiators in assessing market situations, identif3dng
protectionism and discriminatory regulations, and persuading countries to commit
to regulation that allows fair and free competition.
While considering areas of possible liberalization under the pro-competitive
theme, we are conscious that as this is the beginning of a new round of negotiation
it is now possible to address areas that have traditionally not been included in the
WTO. Now is the appropriate time to consider building upon the Financial Services
Agreement to create a second generation of trade agreements that will not only
allow U.S. insurance providers to compete more effectively in international markets
but which will continue the relevancy of the WTO in the future.
163
Solvency and Prudential Focus:
Regulations should focus on insuring that institutions meet reasonable solvency
and prudential requirements as the primary means of protecting consumers. In
most cases, governments should allow the market to determine the most effective
products and the pricing of those products in a competitive regulatory environment
that encourages innovation and product diversity.
Mechanisms to accelerate the licensing of new insurance products should be en-
couraged. Expedited licensing procedures should be available for those products,
which already fit into the existing regulatory framework and are available in the
market. No limits should be placed upon the number or frequency of new product
introductions by a company.
Appropriate rules and procedures that do not discriminate against foreign insur-
ers and are consistently applied should be established and made public governing
the identification and handling (including closure) of financially troubled institu-
tions.
A Transparent Legal, Administrative, and Regulatory Environment:
Standards, requirements, and codes of practice need to be promulgated with con-
sultation, full documentation and accessibility by all market participants. Foreign
insurers applying for authorization to do business should be provided a written
statement, setting out fully and precisely the documents and information the appli-
cant insurer must supply for the purpose of obtaining authorization. This statement
should aim to simplify and accelerate, as appropriate, the explicit procedures to be
followed.
The regulatory body should be an independent government entity. Decisions re-
garding the procedures used by the regulators/supervisors should be impartial with
respect to all participants and not supplant a competitive marketplace. The govern-
ment should ensure that the financial services regulatory bodies have sufficient re-
sources and trained personnel to effectively enforce the solvency, prudential and
consumer protection laws and regulations.
Income Security:
Supporting the “three pillar” pension system currently recommended by the World
Bank and the Organisation for Economic Co-operation and Development, the U.S.
industry supports the development of a WTO mechanism which encourages global
pension reform based on free market principles, with sound regulation, and tax
treatment that encourages citizens to offset the forecasted large gaps in public ex-
penditures through either group or individual forms of savings and benefits.
Access to International Reinsurance Markets:
International reinsurance market access is necessary in all product lines to better
spread loss exposures, absorb catastrophes and marshal sufficient capacity to insure
adequate market resources to avoid any crisis. Therefore, all insurers, domestic and
foreign, should have access to the international reinsurance market, with cross-bor-
der transactions authorised and monopolistic mandatory cession requirements pro-
hibited. Regulations should provide locally established direct insurers with the op-
tion to take credit for cross border reinsurance secured by either: letter of credit,
reasonable trust fund deposit, or funds withheld.
Taxation Stability:
The agreement should require the scheduling of all future teixation of life insur-
ance pension and annuities, property and casualty insurance, reinsurance, long-term
care, disability income and retirement security products, prior to entry into force via
a biannual notification process.
Improving Definitions:
USTR should determine and confirm with the WTO Secretariat the extent to
which all U.S. insurance industry export product lines are currently covered by ex-
isting definitions. Industry suggested additions that are not currently explicitly cov-
ered include: life reinsurance, pension products and services such as plan adminis-
tration, annuities, surety bonds and financial guarantees, disability income and long
term care insurance, health care and medical insurance, as well as ancillary services
such as pension fund management and related endeavours.
Notwithstanding setting higher standards for liberalization, without a funda-
mental strengthening of the dispute resolution mechanism other changes will be
largely pointless. The U.S. should work to ensure that the WTO dispute settlement
164
process provides an effective and meaningful mechanism to challenge practices that
are inconsistent with all current and future commitments.
In conclusion, while these principles are ambitious, they are intended to build
upon the 1997 WTO Financial Services Agreement so that the WTO 2000 Negotia-
tion Objectives will not only improve traditional market access commitments, but
improve regulatory standards to foster financially sound and competitive insurance
markets.
We have the support of our European insurance industry colleagues in promoting
these policy objectives. We are currently working with our Latin American and
Asian counterparts to gain their support as well. We have also begun consultations
with U.S. State regulators and their counterparts in global markets to seek their
support for mutual objectives
We believe we have a historic opportunity to improve our ability to provide our
products and services to the people of the world, and we look forward to working
with the Congress as well as international trade negotiators to achieving these ob-
jectives.
Chairman Crane. Mr. Sandler.
STATEMENT OF GILBERT LEE SANDLER, SENIOR PARTNER,
SANDLER TRAVIS & ROSENBERG, P.A., ON BEHALF OF THE
WASHINGTON INTERNATIONAL INSURANCE COMPANY,
ITASCA, ILLINOIS, ACCOMPANIED BY MICHAEL DAVENPORT,
VICE PRESIDENT, WASHINGTON INTERNATIONAL INSUR-
ANCE COMPANY
Mr. Sandler. Mr. Chairman, thank you very much. We appre-
ciate the opportunity to be here. My name is Lee Sandler. I am an
attorney with Sandler, Travis & Rosenberg, and I am here today
representing Washington International Insurance Co., who is also
represented today by Michael Davenport, their vice president, who
is with me to participate in this hearing.
Washington International is one of the largest suppliers of cus-
toms surety bonds in the United States. Approximately one-third
of the bonds currently on file with the Customs Service are Wash-
ington International-generated bonds. They have a wealth of expe-
rience and knowledge about how the bonding system facilitates
trade, and that experience is the basis of this testimony today.
There are two chief concerns that we have about the ministerial
meetings: facilitating U.S. exports and expanding markets or U.S.
surety companies. We have a simple request, and that is that a
great priority be given to encouraging our trading partners to es-
teblish surety-based control and release systems. There are two
benefits from this that are particularly significant. The first, of
course, is that across the board, all types of goods exported from
the United States can be facilitated by the use of a surety bond
system. The second is that the surety bond industry in the United
States can benefit by the expansion of that industry into a global
environment, allowing them to compete in larger markets.
You heard Chubb testify earlier today about the maturity of the
American insurance market, the flatness of growth. Well, the glob-
al growth in this industry would be extremely important for the
growth of U.S. industries.
What does the bond system do? It completes the sale. Every ex-
port from the United States is a sale, but the sale is not con-
summated when the merchandise leaves our borders. It is only con-
165
summated when it gets into the hands of the customer in the for-
eign destination at the time he wants it and in the condition he
wants it. That doesn’t happen under current systems, where cus-
toms regimes and all the other government agencies who take a
look at trade in a foreign country hold up the goods while they
make all of their final decisions. Plants that could be producing in
those countries and employing people in those countries lie idle
while materials do not get there or while machinery doesn’t get put
in place on productionlines, and goods do not get to customers, so
sales are not consummated.
The surety bond system permits trade to take place in an effi-
cient manner. It is a critical cornerstone of all the transparency
and procedural issues that others have testified to today, and we
would encourage that it be highlighted at these hearings.
When you do not delay goods at the border, it lowers the possi-
bilities of theft, of pilferage, of damage, of contraband. It lowers the
possibility of corruption at borders, which has been such a major
impediment to so many of our companies.
This is not simply a benefit for the U.S. export community, it is
also a benefit for the foreign countries seeking to compete globally
as well. Increasingly, companies trying to make an investment de-
cision whether to place a manufacturing operation abroad or re-
gional distribution center abroad take a look at whether they have
the capacity of moving cargo, moving goods, or moving machinery
or equipment quickly into that commerce in predictable timeframes
and under predictable conditions. The surety bond system is a cor-
nerstone of that type of an investment regime, and our trading
partners should embrace it just as the exporters would embrace it
to encourage to their businesses.
We know that there have been obstacles in discussing this type
of system internationally, whether it is in the FTAA negotiations
or before the WCO or the WTO. That reluctance in foreign coun-
tries to adopt a bonding system often has sprung from a traditional
fear of importer fraud or from a traditional fear that customs serv-
ice officials would not like to see integrity brought into their sys-
tems.
So we have proposed five different approaches to make certain
that this is something that we can bring home to the ministers in
Seattle. First is to take a hard look at creating prototypes; defined
test programs that can be established within our friendly trading
countries that can serve as a model for others to achieve a level
of comfort in the system and for them to copy.
We have suggested that there be some imagination used in ap-
proaching this and not just use traditional bonding systems, includ-
ing a bonding system which is not just a bond posted by the im-
porter, but a bond posted by the exporter. This would work particu-
larly well in related-party transactions, which comprise so much of
our trade today. The related-party exporter bond gives the import-
ing country the knowledge that it is recourse not just against the
importer, but against the surety company and against the export-
ing parent company as well.
Second, to make certain that we in our negotiations have dem-
onstrated the importance of this type of a system to the investment
programs in the foreign countries. Third, capitalize on the business
166
facilitation process, the civil society process that is a companion to
the ministerial meetings. Having the business community come for-
ward and make it clear how important this is to their decision-
making process can be critical to getting the ministers to embrace
it.
We know that the ICC has embraced this process, the U.S. Coun-
cil for International Business and the U.S. Chamber of Commerce
has, and we are certain that the business organizations outside the
United States would as well.
Fourth, tie the system to trade benefit promotion. The World
Customs Organization now has the capacity to measure the length
of time it takes to release cargo into the commerce of a foreign
country. Take that measurement standard and establish it as you
would a tariff level, and use that as a basis for negotiation and pro-
viding of benefits — trade benefits to our trading partners when
they can demonstrate that they have put in place a process that
lowers the length of time it takes to clear goods into the commerce.
When clearance time drops, they would be eligible for additional
benefits.
and fifth is insist upon strict adherence to the customs
avaluation code. Article 13 of that code states very specifically that
there should be a bonding system in place to assure that the deci-
sionmaking by the government agency takes place after the goods
have been released into the commerce under bond and not hold up
the goods at the border while they make prolonged decisions im-
peding commerce for no good reason. There is adequate security
through an adequate bonding system.
We think that these types of imaginative approaches can be very
convincing and can move this issue forward to the benefit of our
exporters, to the benefit of our surety industry, and, in fact, to the
benefit of the foreign countries seeking investment opportunities.
We thank you for the opportunity to testify today.
Mr. PORTMAN [presiding]. Thank you, Mr. Sandler.
[The prepared statement follows:]
Statement of Gilbert Lee Sandler, Senior Partner, Sandler, Travis and
Rosenburg, P.A., on behalf of Washington International Insuranee Com-
pany
We wish to thank the Subcommittee for holding this hearing and providing an op-
portunity for the business community to provide recommendations on the proposals
and positions to be advanced by the United States at the Third Ministerial Con-
ference. The World Trade Organization has taken on an increasingly important role
in the world economy. Its rules and rulings directly affect the ability of United
States companies to compete. Your efforts to obtain a wide range of suggestions
from the business community to better craft United States objectives at the next
Ministerial meeting is most welcome and appreciated.
My testimony today is offered on behalf of Washington International Insurance
Company (“WIIC”). WIIC is a United States insurance company with its head-
quarters office located outside Chicago in Itasca, Illinois. It is one of the many com-
panies certified by the United States Treasury Department to secure government
obligations; it is one of the smaller group of companies which writes substantial
number of bonds securing United States Customs (and other agency) import obliga-
tions. In fact, WIIC is surety on approximately one-third of the bonds currently on
file with the United States Customs Service.
My testimony today also reflects important lessons learned in my law practice. I
am a lawyer with thirty years experience in international trade regulation. My ca-
reer began in the Department of Justice, defending decisions by the United States
Customs Service affecting importations into the United States. After leaving govern-
ment, my practice naturally focused upon representing United States companies
167
seeking to cope with United States import laws. Over the last decade, those United
States companies have increasingly come to us to assist with their exports which
have been ensnarled or damaged by unforeseeable or unacceptable customs proce-
dures administered by our trading partners throughout the world. Many of these
problems are ones which can now be understood, anticipated and remedied — be-
cause so many of our trading partners have adopted the GATT Harmonized Tariff
and Customs Valuation Codes.
This testimony will focus upon another area in which United States companies
can better compete by reform of a world-wide customs procedure: adoption of a sur-
ety-based system for control and early release of cargo, permitting release of goods
to importers before completion of decision-making by the importing government
agencies.
Summary of Statement
In our experience, one of the greatest regulatory needs faced by United States
companies seeking to compete in foreign markets is the need for a reliable system
assuring the quick and timely release of goods into the commerce of the country of
importation. The “quick release” of merchandise from the custody of all government
agencies in the country of importation would allow United States exporters to meet
customer demands and/or manufacturing and inventory schedules. It would also
minimize the opportunities for damage, theft and corruption at the point of entry.
Our trading partners should have a strong interest in the establishment of a cus-
toms bond system: the timely release of goods is a major factor when multinational
companies make investment decisions on where to establish manufacturing and dis-
tribution centers outside the United States. A system that accommodates the needs
of just-in-time inventories for manufacturing and distribution is essential to the suc-
cess of any investment promotion program.
The United States service industries also have a strong interest in establishment
of customs bonding systems throughout the world. United States insurance and sur-
ety companies have the experience and capacity to serve this new marketplace.
International negotiations in the services sector have created the possibility for our
companies to compete; encouragement of new surety bond marketplaces will open
new opportunities for United States companies in a field in which we are already
more experienced than our foreign competitors.
The United States has a long and successful history of relying upon a surety bond
system to satisfy law enforcement interests of the government and the trade facilita-
tion interests of importers. We urge that the strongest possible efforts should be
taken to encourage the adoption of surety-based control and release system by all
of our trading partners.
In addition, we urge that the GATT process reach out more systematically to the
business community by establishing a consultation and negotiation mechanism simi-
lar to the business facilitation measures adopted in the Free Trade Agreement of
the Americas (“FTAA”) negotiations. Long-term negotiations can be supplemented
and enhanced with short-term objectives and accomplishments, focused upon identi-
fying and targeting specific new approaches to facilitate trade.
The Problem
Prolonged detentions or interminable release times for imported cargo are peren-
nial problems for United States exports to foreign nations. Foreign customs regimes
typically insist upon holding goods until they are satisfied that all requirements are
met, including the full range of customs valuation and tariff classification decisions,
quantity and labeling verifications and health and safety standards. This inherent
delay imperils the ability of United States exporters to meet contract or production
deadlines, raises the costs of our products and undermines our basic competitive po-
sition in foreign markets.
In addition, prolonged periods of detention and inspection create an environment
in which corruption can flourish. Delays in release, and the holding of goods in a
detention facility or at the point of entry, render the goods vulnerable to theft and
pilferage. The delays also subject the owners of the goods to solicitation of “gratu-
ities” by government officials or third parties.
This is also a problem which challenges the competitiveness of our trading part-
ners. A surety-based quick release system, permitting release of cargo prior to com-
pletion of the administrative process, will enhance the ability of the importing coun-
try to collect revenues, improve its enforcement efforts and create the efficiencies
needed to compete in a world economy which increasingly invests in countries which
can support just-in-time manufacturing and distribution systems
168
One Solution: Traditional Import Bonds
The United States and many of our major trading partners permit the posting of
a bond written by a government-approved surety company in order to permit the
immediate release of imported goods securing or guaranteeing all of the government
obligations involved in the importations while the government agencies make their
final determinations. This approach allows the importing country to make its final
decision over a reasonable period of time, while permitting businesses to efficiently
move goods into the foreign commerce. This system of customs surety bonds is ap-
proved by the Kyoto Convention and the Customs Valuation Code (Article XIII), but
has gone largely unused.
The role of the traditional surety is to guarantee the importer’s obligations to pay
duties, fees and taxes on the importation, and to comply with all other government
obligations. The traditional bond would secure liquidated damages — but not fines
and penalties for misconduct — assessed for failure to comply with a broad range of
government obligations enforced at the border (i.e., all of the health and safety
measures). The government would continue to look to the importer — at least ini-
tially — to fulfill its obligations under the law, but upon default by the importer,
would have recourse against the surety to collect its revenues and enforce its laws.
The traditional import bond is made available by the insurance or surety industry
in the country of importation. Any country with a large pool of importers and an
insurance or finance industry with access to information necessary to underwrite
the risk of writing bonds for a particular company is capable of instituting a bond
system very quickly and successfully.
In addition, a sound surety system relies upon a national legal and judicial sys-
tem which permits seeking reimbursement from defaulting or bankrupt bond prin-
cipals (i.e., importers), and administrative and judicial procedures which allow the
surety to evaluate, accept or contest demands made upon it by customs authorities.
United States insurance and surety companies have long worked successfully in
providing security for United States Customs obligations, and are likely to be able
to participate in an expanded international marketplace for customs surety bonds.
The efforts by the Administration to open the world’s insurance markets to foreign
investors provides an important platform for United States participation in an ex-
panded use of the surety system to facilitate international trade.
Another Solution: Non-Traditional Bond
It is recognized that a traditional import bond may not be a viable alternative in
many of the developing counties due to the lack of the necessary industry and legal
structures described in the preceding section of this statement. Accordingly, we urge
consideration of new, non-traditional approaches to bonding systems which could es-
tablish “quick release” systems to complement or substitute for a traditional bond-
ing system. One such Non-traditional system is an exporter bond.
Under an exporter bond system, the importing country would agree to accept the
bond written by a surety approved by that country and posted with it by the export-
ing company. The bond could also be signed by the importer. The bond could secure
all (or designated) obligations to the importing country. It could provide recourse by
the importing country against the exporter — with benefit of the surety obligations —
while continuing its recourse against the importer. It would not alter the commer-
cial terms of the transaction (e.g. title would pass wherever designated by the par-
ties).
The Non-traditional concept has many advantages. It serves the traditional roles
of import bonds: immediate release of goods while customs authorities take addi-
tional time to make proper decisions; enforcement of laws against the importer with
reliable security available from the bonding company to both satisfy the government
obligation and to have private industry continue to pursue the importer-of-record.
It has several added advantages over those available in a traditional bond pro-
gram: it provides a unique assurance to the importing country that it has recourse
against the exporter as well as the importer, and a better means to appreciate and
evaluate the transaction value reported for the transaction. In related party trans-
actions, validation of the transaction value is particularly significant — involvement
of the exporter in the security arrangement could improve the possibility that re-
lated party transaction values will be more readily accepted by new signatories to
the Customs Valuation Code. Further, the non-traditional exporter bond would fos-
ter a favorable environment for foreign investment to build industrial capacity with-
in the importing country by establishing a more reliable and predictable customs
procedure for multinational companies.
An exporting bond system could be established in developing countries much fast-
er than a traditional bonding system. Since the bond principal is in the country of
169
exportation, the surety need not rely upon the country of importation for the pool
of companies needing bonds, access to underwriting information, and legal and judi-
cial systems in place to permit seeking reimbursement from the principal. The im-
porting country would be required only to establish procedures to certify companies
eligible to write bonds, and to provide reasonable administrative and judicial proce-
dures for evaluating and contesting demands made on the bonds by the customs au-
thorities.
Summary and Conclusion
One of the most significant regulatory impediments to United States competitive-
ness in worldwide product markets is the inability to have our exports released
timely by foreign government agencies. We urge that this problem be attacked at
the Ministerial Meetings by encouraging the adoption of surety-based quick release
procedures. We believe that such procedures are also important to the United States
insurance and surety industries, as they seek to compete in worldwide markets, and
to our trading partners as well, as a necessary part of their efforts to compete for
foreign investment and a larger role in global manufacturing and distribution.
Mr. PoRTMAN. Mr. Dawson.
STATEMENT OF RHETT DAWSON, PRESIDENT, INFORMATION
TECHNOLOGY INDUSTRY COUNCIL
Mr. Dawson. Mr. Chairman, I am Rhett Dawson, president of
the Information Technology Industry Council, and I want to leave
with you three thoughts today if I could. Information technology is
one of the key sectors of the economy driving growth and increas-
ing jobs. Second, we are delighted that we have been the recipient,
the beneficiary of the past efforts to improve trade and eliminate
barriers in information technology products and services. And we
are happy that we have contributed to that success ourselves in our
leadership.
The third point I want to leave with you today is that in Seattle
we hope that the ministers will kick off something we call the
Trade Framework for the Information Economy. My organization,
the Information Technology Industry Council, represents the lead-
ing providers of information technology products and services, and
we have been very deeply involved in the past trade agenda, and
we have a big stake in this one as well. Our members had world-
wide revenues of $440 billion in 1998, and we employ 1.2 million
people in the United States.
A recent administration report put it this way: Over the past 4
years, information technologies industry output has contributed
more than one-third to the growth of real output of the overall
economy.
The ubiquity of the Internet is altering the way our economy op-
erates. Growth in electronic commerce is astounding everyone, and
it is not a sector of the economy that is reserved just for the so-
called Internet companies. There is now recognition that to be com-
petitive in any business, companies must understand how to effec-
tively utilize information technology and the Internet.
Let me give you a perspective on what is called the connected
economy. The 1999 estimate is that 200 million PCs, in homes and
businesses, are going to be connected worldwide. The number is
going to double in 2 years. And, we are on our way to 1 billion con-
nected personal computers worldwide.
170
There is recognition that not only is this good for business, but
it is also good for consumers. And it is also good for expressing
where we are and what we stand for as a country. The information
revolution makes freedom more attainable because it makes it
more difficult for governments to control, censor and centralize the
free flow of information.
American consumers and businesses have benefited greatly from
past successes on opening up global trade and information tech-
nology goods. Let me give you two conspicuous examples. First, of
great significance to our country and our industry was the negotia-
tion of 1996 Information Technology Agreement. The ITA currently
has 44 signatory countries and represents well over 90 percent of
the world market for IT products, and we are hopeful that we can
add China to that list when they become a member of the WTO.
Full implementation of the ITA next year will bring tariffs on a
broad range of information technology products to zero. Already the
information technology agreement has stimulated over $500 billion
in trade.
We also benefited from the 1998 WTO Ministerial agreement not
to impose customs duties on electronic transmissions, the so-called
duty-free cyberspace declaration. This gives us more breathing
space in other countries to see the benefits of IT and better under-
stand how electronic commerce is changing international business
opportunities for our citizens.
The Seattle Ministerial offers an opportunity to pull all of these
elements together, recognize the role of electronic commerce in pro-
moting and facilitating international trade, and articulate what I
called before, the Trade Framework for the Information Economy.
We propose that the WTO ministers when they meet in Seattle
endorse this Trade Framework for the Information Economy and
take on four commitments: First, to agree to continue the May 20 ,
1998, moratorium on customs duties on electronic commerce — that
is duty-free cyberspace — and do that for the duration of the next
round, and that applies to both the transmissions themselves and
to their content.
Second, we want the ministers to reaffirm that current WTO ob-
ligations, rules, disciplines and commitments, namely the GATT,
GATS and TRIPS agreement, are technology-neutral and apply to
e-commerce. We do not need to invent new trade rules when exist-
ing rules may serve.
Third, we want ministers to commit to refrain from taking meas-
ures that would inhibit the growth of e-commerce and access to in-
formation technology. Forbearance is a very tough thing for govern-
ments to do, but that is what is needed and what we are seeking.
But even when domestic measures in a country are taken, we think
even when that happens, the measures should be such that they
are the least trade-distortive as possible and subject to WTO prin-
ciples.
Fourth, we want ministers to begin work on the trade frame-
work, but here we ought to be explicit. We are not proposing that
the WTO embark on negotiations on issues that are not yet ripe
for international agreement. There is a lot of work to be done to
broaden the understanding of the connected economy and how it is
changing business, and they should also examine how current
171
trade rules apply and to assess whether new regimes are necessary
to provide a strong underpinning for the global information econ-
omy.
A political commitment to forbear from taking measures that
would inhibit access to or use of the Internet would provide the
measure of confidence that all businesses seek from every part of
the globe.
In the last several months, ITI has participated in seminars in
Geneva to acquaint WTO representatives there from over 60 coun-
tries with the benefits of information technology and electronic
commerce. We strongly encourage that the WTO work on e-com-
merce continue, and we are delighted to have an opportunity to
have testified today. Thank you.
Mr. PORTMAN. Thank you, Mr. Dawson.
[The prepared statement follows:]
Statement of Rhett Dawson, President, Information Technology Industry
Council
Thank you Mr. Chairman for inviting me to testify today on the upcoming World
Trade Organization Ministerial and the agenda for the New Round.
In my brief comments today, I want to leave you with three thoughts:
• Information technology (“IT”) is driving US economic growth, increasing produc-
tivity, creating better paying jobs and expanding opportunities for all Americans. A
substantial part of the growth is due to strong exports of information technology
products and services.
• The IT industry and consumers and businesses around the world have benefited
from past successes to eliminate barriers to trade in IT products and services.
• In order to further extend the benefits of IT to developing countries in the 21st
Century, we are putting forward an initiative we call the “Trade Framework for the
Information Economy”.
First, though, a few words about the association I represent. The Information
Technology Industry Council represents the leading U.S. providers of information
technology products and services (a membership list is attached). We advocate ex-
panding economic growth through innovation and support free-market policies. Our
members had worldwide revenue of more than $440 billion in 1998 and employ
more than 1.2 million people in the United States.
I. Information Technology’s Contribution to US Economic Growth
As Eederal Reserve Chairman Alan Greenspan recently told the Joint Economic
Committee, “Something special has happened to the American economy i.”
• Information technology jobs are high pa 3 dng jobs, averaging $53,000 per year,
compared to an average of $30,000 per year for all private sector jobs.^
• Technology has played a key role in restraining inflation. Price changes in IT-
producing industries, compared with the rest of the economy, have resulted in a low-
ering of domestic inflation by one full percentage point per year during both 1996
and 1997.3
• Investment in computers and information technologies in the 1990s by every
sector of our economy — from carmakers to farmers — has cut production costs and
boosted output. The result has been to hold prices down and increase American com-
petitiveness internationally.
• IT contribution to real domestic economic growth continues to increase. The
Commerce Department’s recent report. The Emerging Digital Economy II, put it this
way: “Over the past four years, IT industries’ output has contributed more than one-
third to the growth of real output for the overall economy.”
1 Testimony of Federal Reserve Chairman Alan Greenspan before the Joint Economic Com-
mittee, June 14, 1999.
3 The Emerging Digital Economy 11, US Department of Commerce, June 1999, page 39
3 Ibid., page 18
■•Ibid., page 19
172
• Again, quoting Chairman Greenspan, “The newest innovations, which we label
information technologies, have begun to alter the manner in which we do business
and create value, often in ways not readily foreseeable even five years ago.” ®
The increasing ubiquity of the internet is promising to significantly alter the way
our economy operates. Growth in electronic commerce is astounding — and this is not
a specialized sector of the economy reserved for the so-called “internet companies.”
There is now recognition that to be competitive in any business, companies must
understand how to effectively utilize information technology and the Internet.
Some industry analysts estimate that e-commerce will generate more than $3 tril-
lion in sales by 2003. This is due in large part to the United State’s world leader-
ship in the information technology sector as well as policies that promote minimal
regulation and free trade.
II. IT Has Benefited from Past Successes
American consumers and business have benefited greatly from past successes to
open global trade in information technology goods, establish ground rules for com-
petitive telecommunications services, intellectual property protection, and the mora-
torium on customs duties on electronic transmissions. ITI and its member compa-
nies have been in the vanguard of these and other trade policies and intend to con-
tinue our leadership role.
Let me give you two conspicuous examples:
The IT A
Of great significance to our industry was negotiation of the 1996 Information
Technology Agreement. The ITA currently has 44 signatory countries, representing
well over 90% of the world market for IT products. We are hopeful that we can add
China to the list of signatories when China becomes a member of the WTO.
Full implementation of the ITA next year among the signatories will bring tariffs
on a broad range of information technology products to zero. Already, the ITA has
stimulated over $500 billion in trade, and Facilitated access to state-of-the-art infor-
mation technology in both developed and developing countries.
In addition to eliminating duties on IT products, the ITA has a built-in review
mechanism that ensures it will be expanded over time to include other countries
and products. This is a critical point for our industry. In just the past three years
we have seen the convergence of computing, telecommunications and consumer elec-
tronics technologies, and the creation of a range of fascinating new products and ap-
plications. The ITA must be updated to include these new products. In addition,
there is opportunity to further open trade at the level of parts, components and
other inputs.
We strongly advocate completion of the ITA II negotiations to expand product cov-
erage and establishment of an aggressive work program to address trade issues aris-
ing from convergence and non-tariff barriers, particularly technical standards. In
that respect we have been especially active in advancing an agenda to eliminate du-
plicative testing and certification requirements for IT products in foreign markets.
Trade and Electronic Commerce.
Our industry benefited from the 1998 WTO Ministerial agreement not to impose
customs duties on electronic transmissions, the so-called “Duty-free Cyberspace Dec-
laration.” This action and the ensuing year-long work program have given countries
“breathing space” to examine the benefits of IT, better understand how electronic
commerce is changing international trade and business opportunities for their citi-
zens, and think through appropriate next steps.
Some have said that e-commerce is simply another form of trade. This is true, but
that description does not go far enough. Information technology makes e-commerce
possible, transforms old ways of doing business (including entire industries), and
creates new economic opportunities. People all over the world are “connected” with
one another like never before.
Too often we have a tendency to think about and address each WTO agreement
or work program in isolation from all of the others — the Information Technology
Agreement separate from the Basic Telecom Agreement; the Agreement on Trade-
Related Aspects of Intellectual Property separate from the Agreement on Technical
Barriers to Trade; and so on. As we bore down even deeper into the details of each
individual subject, we lose sight of the interrelationships between and among the
agreements. For a cross-cutting industry like information technology, this approach
® Federal Reserve Chairman Alan Greenspan, May 6, 1999.
173
often forces us to emphasize certain elements over others. We risk losing focus on
the broader goal.
The Seattle Ministerial offers an opportunity to pull all of these elements to-
gether, recognize the role of electronic commerce in promoting and facilitating inter-
national trade, and articulate what we call the “Trade Framework for the Informa-
tion Economy.”
III. Objectives for the Seattle Ministerial
We propose that the WTO Ministers, when they meet in Seattle, set forth the
“Trade Framework for the Information Economy” through four related commit-
ments. Taken together, these commitments provide a transparent, predictable, and
technology-neutral international trade environment that will foster global economic
growth and development.
These commitments are political only, and by that I mean that they would not
be legally binding or enforceable. They would reflect the “best efforts” of trade min-
isters to keep electronic commerce “barrier-free.”
The first commitment is to agree to continue the May 20, 1998 Moratorium on
Customs Duties on Electronic Commerce (for at least the duration of the New
Round) and clarify that the exemption from tariffs applies both to the transmissions
themselves and to their contents.
Second, we want the Ministers to reaffirm that current WTO obligations, rules,
disciplines and commitments (namely the GATT, GATS and TRIPS agreements) are
technology-neutral and apply to e-commerce. We don’t need to invent new trade
rules when using the existing rules may serve us better.
Third, we want Ministers to commit to refrain from taking measures that could
inhibit the growth of e-commerce and access to IT. Forbearance is a tough thing for
governments to do, but that is what is needed and what we are seeking. However,
should domestic measures be deemed necessary, even then the measures should be
the “least trade distortive” as possible and subject to WTO principles (in particular,
national treatment, non-discrimination, transparency, notification, review and con-
sultation).
Fourth, we want Ministers to initiate the Trade Framework for the Information
Economy. Let me be explicit: we are not proposing that the WTO embark on nego-
tiations on issues that are not yet ripe for international agreement. But, there is
much work to be done to broaden understanding of how electronic commerce is
changing global business, to examine how current trade rules apply, and to assess
whether new rules are necessary to provide a strong underpinning for the global in-
formation economy. The Seattle Ministerial offers an opportunity to initiate work on
these critical issues.
Let me underscore the importance we attach to a political commitment by min-
isters to refrain from taking measures that restrict or inhibit electronic commerce.
In order for all countries — both developed and developing — to reap the benefits of
the information age, electronic commerce must remain as unimcumbered as possible
from regulation and trade barriers.
One of the main reasons electronic commerce has grown so quickly is because the
internet has not been singled out for regulation. We propose Ministers commit
themselves to resisting imposing burdensome regulations that will inhibit the
growth of electronic commerce and instead, when measures must be taken, make
them the least restrictive.
A political commitment to “forebear” from taking measures that would inhibit ac-
cess to or use of the Internet would provide the measure of certainty that businesses
all around the world seek. And it would set into motion a dialogue among countries
on the trade-distortive effects of potential measures — again, to the benefit of all
WTO members.
In the last several months, ITI and its member companies have conducted four
seminars in Geneva to acquaint WTO representatives from over 60 countries with
the benefits of information technology and electronic commerce. We strongly encour-
age that the WTO’s work on e-commerce include substantive dialogue with industry.
ITI stands ready to provide whatever assistance we can to ensure that the Seattle
Ministerial and the ensuing negotiations result in a transparent, predictable and
technology-neutral trade environment that will foster global economic growth and
development. This would be a “win” for all and another reason to celebrate the bene-
fits of information technology as we reach the start of the 21st Century.
Thank you Mr. Chairman and I would be happy to answer any questions you
might have.
174
Mr. PoRTMAN. Director Jones.
STATEMENT OF SHELDON R. JONES, DIRECTOR, ARIZONA
DEPARTMENT OF AGRICULTURE, PHOENIX, ARIZONA
Mr. Jones. I am Sheldon Jones, director of the State Department
of Agriculture for the State of Arizona in Phoenix. I am grateful to
you and to the Subcommittee as a whole for giving me this oppor-
tunity to speak on behalf of the State of Arizona on why it is cru-
cial that the United States continue its ambitious trade agenda.
Now more than ever it is imperative that the United States nego-
tiate and enforce agreements worldwide which will create open and
fair markets for U.S. products and services. This process of engage-
ment will ensure our continued growth and standard of living into
the 21st century.
Allow me to begin by stating that Arizona fully supports legisla-
tion providing the administration fast track trade authority. An ex-
port-dependent industry, U.S. agriculture must be able to compete
in foreign markets on a level playingfield. Without authority to ne-
gotiate trade agreements, the administration cannot fully assure
agriculture a place at the table in the international marketplace.
Comprehensive negotiating authority is needed to address high
tariffs, trade-distorting subsidies and other restrictive trade prac-
tices. Fast track is also needed to pursue promising new opportuni-
ties for market-opening trade agreements in Latin America, Asia
and elsewhere. Passing fast track legislation will provide the ad-
ministration with the necessary authority to assure the U.S. com-
petitiveness in foreign markets does not continue to suffer.
The United States has 4 percent of the world’s population and
controls 22 percent of the world’s wealth. In the next 15 years, the
developing countries in both Latin America and Asia are expected
to grow three times as fast as the United States, Europe and
Japan. With this information, it is clear that if 4 percent of the
world’s population is to maintain 22 percent of the world’s wealth
and create more wealth, we must open up the world’s fastest-grow-
ing markets to U.S. products and services.
The World Trade Organization today is the result of 50 years of
American leadership and the creation of an international trading
system. This system is designed with the primary goal of tearing
down foreign trade barriers and promoting a singular rule of law
in the arena of international trade. The World Trade Organization
has worked to cut tariffs and quotas on farm and ranch products
worldwide. However, many will agree there is much more to be ac-
complished. I applaud both Ambassadors Barshefsky and Esserman
for their commitment to address the concerns of the U.S. agri-
culture industry in its recent circulated objectives for the agri-
culture negotiations.
While I fully support the four objectives to which the USTR has
committed its attention, I believe the trade issues facing agri-
culture in America extend deeper and deserve further specific at-
tention. Today, I will touch on five issues which the State of Ari-
zona views as critical to the success of any international trade sys-
tem for agricultural products.
175
First, the State of Arizona supports the unilateral reduction of
all foreign subsidies and tariffs on all agricultural products. Ample
time has passed since WTO initiated agricultural trade reform, and
it shouldn’t be unrealistic to expect the WTO member countries to
have significantly reduced agricultural dependence on government
support. Arizona recognizes the prerogative of sovereign nations to
support farmers and ranchers if they so choose; however, it is im-
portant that the WTO address the distortions these measures of
support have caused to global production and trade.
The 1996 farm bill clearly established the expectation of this gov-
ernment that the United States agricultural industries would learn
to compete internationally with minimal subsidization in the field
and in the marketplace. We, as a whole, recognized the need to re-
direct this sector of our economy to a self-sufficient, market-driven
industry. The days of heavy governmental assistance for farming
and ranching in this country were over. This, as we all know, is
just not the case throughout the rest of the world.
Without the elimination of unreasonable government field and
market subsidization of WTO member countries’ agricultural indus-
tries, U.S. farmers and ranchers cannot compete.
Equally important is the issue of tariffs placed on agricultural
products. The State of Arizona supports the reciprocal reduction of
tariffs in WTO member countries on U.S. agriculture products.
Second, the State of Arizona supports the implementation of
rules for the trade of perishable and seasonal commodities. In fiscal
year 1997, Arizona agricultural operations raising everything from
artichokes to cotton lint, corn to honey, to tomatoes and water-
melon generated nearly $2.2 billion in cash receipts from agri-
culture marketings. While Arizona produces a variety of crops, a
great variety of commodities produced in my State are seasonal
and perishable in nature. Presently no specific rules exist to deal
with the trade of perishable and seasonal commodities. When
asked if specific rules for perishable commodities were needed at
the Agriculture Forum immediately preceding the Free Trade Area
of the Americas Business Forum in Belo Horizonte, the head of the
Uruguay round agriculture negotiating team agreed that the pro-
mulgation of such rules would be both helpful and advisable for all
WTO member countries.
Third, the State of Arizona supports the implementation of a
workable and meaningful dispute resolution mechanism. Presently,
Arizona believes the avenues for dispute resolution within the
WTO inadequately suit the needs of perishable and seasonal com-
modities. By their very nature, these commodities require timely
solutions to ensure that perishable shipments are not lost to bu-
reaucratic or political mechanisms.
In the new round of negotiations, Arizona recommends that the
U.S. solicit clarification of the dispute settlement process with a
strong enforcement mechanism, limited settlement appeals, and
strict compliance deadlines.
Fourth, the State of Arizona supports the Uruguay round agree-
ment on sanitary and phytosanitary measures and does not sup-
port opening them for discussion. Despite the adoption of the Uru-
guay round agreement on SPS issues, a number of WTO member
countries continue to impose sanitary and phytosanitary measures
176
which are questionable at best in nature and sincerely lack a basis
in sound science. These SPS measures create tremendous barriers
to market access abroad for U.S. agricultural products.
While some WTO member countries wish to reopen he SPS
agreement for amendment, the State of Arizona believes that the
WTO’s strict enforcement and thorough implementation of the cur-
rent SPS agreement is absolutely essential to the success of any
international trade system.
Fifth, the State of Arizona supports transparency and science in
the genetically modified organism approval process and market ac-
cess for GMOs. I support the administration’s recently circulated
position to the WTO entitled “Measures Affecting Trade in Agricul-
tural Biotechnology Products.” as a representative of a $6.3 billion
industry in Arizona, I am tremendously concerned that the Euro-
pean Union’s approval system for biotechnology products is a proc-
ess rooted in hysteria and lacking transparency.
The State of Arizona continues to advocate for global market ac-
cess for genetically modified organisms in all WTO countries. Fur-
ther, we believe it is imperative that any process developed for ap-
proval of GMOs is fully transparent to all parties.
In summary, the State of Arizona advocates for and urges you to
support the unilateral reduction of foreign subsidies and tariffs, im-
plementation of rules for the trade of perishable and seasonal com-
modities, clarification of existing dispute resolution mechanisms,
adherence by all WTO member countries to the Uruguay round
Agreement on Sanitary and Phytosanitary Measures, and trans-
parent market access for genetically modified organisms.
On behalf of the State of Arizona and Governor Hull and the ag-
riculture industry, I thank you for this opportunity.
Chairman Crane [presiding]. Thank you, Mr. Jones.
[The prepared statement and attachments follow:]
Statement of Sheldon R. Jones, Direetor, Arizona Department of
Agriculture, Phoenix, Arizona
Thank you, Mr. Chairman, for inviting my testimony on the importance of strong
U.S. negotiation objectives for the World Trade Organization Seattle Ministerial
Meeting in November. I am grateful to you and to the Subcommittee as a whole
for giving me this opportunity to speak on behalf of the State of Arizona on why
it is crucial that the U.S. continue its ambitious trade agenda. Now, more than ever,
it is imperative that the U.S. negotiate and enforce agreements worldwide which
will create open and fair markets for U.S. products and services.
This process of engagement will insure our continued growth and standard of liv-
ing into the 21st Century. My testimony will touch on why an aggressive trade pol-
icy to open markets is important to the agricultural industries of Arizona’s economy.
Allow me to begin by stating Arizona fully supports legislation providing the Ad-
ministration Fast Track trade authority. An export dependent industry, U.S. agri-
culture must be able to compete in foreign markets on a level playing field. Without
authority to negotiate trade agreements, the Administration cannot fully assure ag-
riculture a place at the table in the international market place.
Comprehensive negotiating authority is needed to address high tariffs, trade-dis-
torting subsidies, and other restrictive trade practices through hirther World Trade
Organization (WTO) negotiations. Negotiating authority is also needed to pursue
promising new opportunities for market opening trade agreements in Latin Amer-
ica, Asia and elsewhere.
Equally important to nurturing existing trade alliances, is the commitment to en-
sure that trade liberalization continues so the agriculture industry can compete fair-
ly in the global market place. As price supports continue to be phased out under
the 1996 Farm Bill, international trade has become increasingly important to the
stability of agriculture. Fast Track gives the U.S. the tools necessary to continue to
177
play a role in the trade liberalization process and the opening of overseas markets
to quality agricultural products.
Passing Fast Track legislation will provide the Administration with the necessary
authority to assure the U.S. competitiveness in foreign markets does not continue
to suffer. The United States has 4% of the world’s population and controls 22% of
the world’s wealth. In the next fifteen years, the developing countries in both Latin
America and Asia are expected to grow three times as fast as the United States,
Europe and Japan. With this information it is clear to see that if 4% of the world’s
population wants to maintain 22% of the world’s wealth, or grow more control, we
must open up the world’s fastest growing markets to U.S. products and services.
Recently, the Arizona Department of Agriculture had the opportunity to partici-
pate in the formation of a coalition, known now as NFACT, with the departments
of agriculture from New Mexico, Florida, California, and Texas. NFACT represents
over 23% of total U.S. agricultural cash receipts, as well as 25% of the entire U.S.
Congressional Delegation. Agricultural exports from the states represented by
NFACT in 1997 alone were estimated to be over $5 billion. Among the positions
these five states gained consensus is the issue of international trade. While we rep-
resent varied constituencies, our concerns with fundamental agricultural trade
issues are similar. My comments today will reflect many of the concerns the NFACT
coalition has expressed to the Office of the United States Trade Representative, the
United States Department of Agriculture, and to Members of Congress in recent vis-
its.
Arizona already benefits from a number of agricultural trade agreements. Since
Arizona is the only documented fruit fly-free state in the United States, our citrus
is in high demand throughout the world, especially Southeast Asia, China and
Japan. With more than 25% of Arizona’s farm receipts coming from cattle, our state
benefitted from the significant reduction of beef export and slaughter tariffs by a
number of countries following agreements reached at the Uruguay Round, including
Korea, Japan, Mexico, and the European Union.
According to the Arizona Department of Commerce, economists agree that Arizo-
na’s overall economy will remain strong throughout 1999, with job creation heading
the list of positive indicators. Exports of Arizona based companies topped $11.4 bil-
lion in 1998, a decline from the record-breaking total of $13.8 billion in 1997, but
still the second most successful year in the state’s history. Arizona exports topped
$2.8 billion for the first quarter of 1999, down 3.7% compared to the first quarter
of 1998. This decline has been attributed to the effect of the “Asian flu” on Arizona-
based companies. However, Arizona exports to North American Free Trade Agree-
ment (NAFTA) member countries have increased dramatically since the negotiation
of the Agreement.
Western Blue Chip Economic Forecast (April), a consensus forecast of economists
from 10 Western states, ranked Arizona #1 in the nation for nonagricultural job
growth in 1998. With a 4.7% increase, Arizona surpassed Nevada which had held
the top position for the past four years.
However, even with the tremendous job growth in urban populations of Arizona,
my state’s rural and chiefly agricultural communities are feeling the pinch. With
sagging prices, labor shortages, increased costs and diminishing abilities to compete
in domestic channels of trade, Arizona’s farmers and ranchers are now, more than
ever, looking to the global marketplace to earn their living. My testimony today will
provide you with valuable insight to the concerns of Arizona’s farmers and ranchers
when faced with the challenge of gaining foreign market access.
The World Trade Organization today is the result of fifty years of American lead-
ership in the creation of an international trading system. This system was designed
with the primary goal of tearing down foreign trade barriers and promoting a sin-
gular rule of law in the arena of international trade.
The WTO has worked to cut tariffs and quotas on farm and ranch products world-
wide. However, many will agree there is much more to be accomplished. I applaud
both Ambassadors Barshefsky and Esserman for their commitment to address the
concerns of the U.S. agriculture industry in its recently circulated “Objectives for
the Agriculture Negotiations.” While I fully support the four objectives to which the
USTR has committed its attention, I believe the trade issues facing agriculture in
America extend much deeper and deserve further specific attention.
Today I will touch on five issues which the State of Arizona views as critical to
the success of any international trade system for agricultural products. Those issues
are the Reduction of Foreign Subsidies and Tariffs, Implementation of Rules for Per-
ishable and Seasonal Commodities, Dispute Resolution Mechanisms, Adherence to
Sanitary and Phytosanitary Agreement, and Transparent Market Access for Geneti-
cally Modified Organisms.
178
• The State of Arizona supports the unilateral reduction of all foreign
subsidies and tariffs on all agricultural products.
Ample time has passed since WTO initiated agricultural trade reform and it
should not be unrealistic to expect the WTO member countries to have significantly
reduced agricultural dependence on government support. Arizona recognizes the
prerogative of sovereign nations to support farmers and ranchers if they so choose.
However, it is important that the WTO address the distortions these measures of
support have caused to production and trade.
The 1996 Farm Bill clearly established the expectation of this government that
U.S. agricultural industries would learn to compete internationally without sub-
sidization, in the field or the marketplace, or face going out of business. We, as a
whole, recognized the need to redirect this sector of our economy to a self-sufficient
market-driven industry. The days of heavy government assistance for farming and
ranching in this country were over. This, as we all know, just isn’t the case through-
out the rest of the world.
Without the elimination of government field and market subsidization of WTO
member countries’ agricultural industries, U.S. farmers and ranchers CANNOT
COMPETE.
Equally important is the issue of tariffs placed on agricultural products. The State
of Arizona supports the reciprocal reduction of tariffs in WTO member countries on
U.S. agricultural products.
The tariffs on fruits and vegetables entering the United States, for example, are
among the lowest in the world. Legitimately, the agricultural producers of Arizona
believe that reciprocity should be granted and all such tariffs in WTO member coun-
tries be uniformly reduced. It also warrants clarification that true reductions in tar-
iffs should be thorough in nature. That is, not only should the bound rate be ad-
dressed when reductions are made but, rather, the currently applied rate should be
addressed simultaneously. If the applied rate is not addressed, often times the tariff
reductions are meaningless and I applaud the USTR for recognizing the need to re-
duce the disparity between the applied and bound tariff rates.
• The State of Arizona supports the implementation of rules for the trade
of perishable and seasonal commodities.
In fiscal year 1997, Arizona agricultural operations, raising everything from arti-
chokes to cotton lint, corn to honey, to tomatoes and watermelon, generated nearly
$2.2 billion in cash receipts from amcultural marketings. While Arizona produces
a variety of crops, a great number of the commodities produced in my state are sea-
sonal and perishable in nature. Presently, no specific rules exist to deal with the
trade of perishable and seasonal commodities. When asked if specific rules for per-
ishable commodities were needed at the Ag Forum immediately preceding the Free
Trade Area of the Americas Business Forum in Belo Horizonte, the head of the Uru-
guay Round agriculture negotiating team agreed that the promulgation of such rules
would be both helpful and advisable for all WTO member countries.
Because Arizona and its NFACT counterparts produce a tremendous number of
fruits and vegetable as well as live animal agriculture, I urge the USTR to develop
immediately trade rules for these valuable perishable and seasonal commodities.
Failing to do so guarantees the producers of non-traditional crops in my state as
well as those in other “non-Farm Belt” states are being left behind.
• The State of Arizona supports the implementation of a workable and
meaningful dispute resolution mechanism.
Presently, Arizona believes the avenues for dispute resolution within the WTO in-
adequately suit the needs of perishable and seasonal commodities. By their very na-
ture, these commodities require timely solutions to insure that perishable shipments
are not lost to bureaucratic or political mechanisms. In the new round of negotia-
tions, Arizona recommends the U.S. solicit clarification of the dispute settlement
process with a strong enforcement mechanism, limited settlement appeals and strict
compliance deadlines.
• The State of Arizona supports the Uruguay Round Agreement on Sani-
tary and Phytosanitary Measures.
Despite the adoption of the Uruguay Round Agreement on Sanitary and
Ph 3 d;osanitary Measures (SPS), a number of WTO member countries continue to im-
pose sanitary and phytosanitary measures which are questionable, at best, in na-
ture and sincerely lack a basis in sound science. These SPS measures create tremen-
dous barriers to market access abroad for U.S. agricultural products.
While some WTO member countries wish to reopen the SPS Agreement for
amendment, the State of Arizona believes the WTO’s strict enforcement and thor-
ough implementation of the SPS Agreement and adherence to these standards by
all member countries is absolutely essential to the success of any international trade
system.
179
With an increased emphasis on international trade, Arizona, and its border state
counterparts, has experienced significant increases in detections of plant and animal
pests and diseases at our borders. These detections will have devastating economic
impacts to U.S. agricultural producers if left unmanaged by the U.S. and trade alli-
ances like the WTO. Unfortunately, U.S. Customs, the United States Department
of Agriculture and the U.S. Food and Drug Administration have not been able to
provide adequate border inspections and surveillance efforts due to budgetary and
staffing constraints leaving the enforcement of federal inspections in large part to
State governments.
I urge the U.S. negotiators to address the SPS Agreement in their efforts to nego-
tiate the objective of implementation. Focus must be made on the enforcement of
legitimate science-based sanitary and phytosanitary measures and not based on the
non-tariff trade barriers promulgated by other nations.
• The State of Arizona supports transparency and science in genetically
modified organism approval process and market access for genetically
modified organisms
I support the Administration’s recently circulated position to the WTO entitled
“Measures Affecting Trade in Agricultural Biotechnology Products.” As a representa-
tive of a $6.3 billion dollar industry in Arizona, I am tremendously concerned that
the European Union’s approval system for biotechnology products is a process rooted
in hysteria and lacking transparency.
The State of Arizona continues to advocate for global market access for genetically
modified organisms in all WTO countries. Further, we believe it is imperative that
any process developed for the approval of GMOs is fully transparent to all parties.
In summary, the State of Arizona advocates for and urges you to support the uni-
lateral reduction of foreign subsidies and tariffs; implementation of rules for the
trade of perishable and seasonal commodities; clarification of existing dispute reso-
lutions mechanisms; adherence by all WTO member countries to the Uruguay
Round Agreement on Sanitary and Phytosanitary Measures; and transparent mar-
ket access for genetically modified organisms.
On behalf of the State of Arizona, the Arizona Department of Agriculture and the
multi-billion dollar industries it supports, I want to thank you again for providing
our local government the opportunity to share with you our concerns for the upcom-
ing Ministerial meeting in Seattle.
July 17, 1999
The Honorable Charlene Barshevsky
U.S. Trade Representative
600 17th Street, N.W.
Washington, D.C.
Dear Ambassador Barshevsky:
Agricultural representatives of 44 states and provinces from the three NAFTA
countries met at the States-Provinces Agricultural Accord in Salt Lake City, July
16-17, 1999. A key objective was to develop common positions for the upcoming
WTO negotiations that will provide increased potential for the profitability and long-
term viability of our producers.
Our countries must adopt a negotiating strate^ that makes agriculture the high-
est priority for the upcoming WTO round. Negotiating strategies that leave the dif-
ficult agricultural issues unresolved will be detrimental to the future growth and
prosperity of our agricultural industries in all three countries. Any WTO agreement
that does not include substantially improved rules in agricultural trade will be
judged a massive failure by our farmers and ranchers.
We urge you to utilize the following recommendations as you work to finalize your
negotiating strategy.
Sanitary ! Phytosanitary Issues: The Sanitary/Phytosanitary (SPS) chapter should
remain intact and closed to further negotiation. However, the process supporting the
SPS chapter must be strengthened and effectively enforced in order to ensure WTO
member compliance. Improvements in efficiency of the WTO Dispute Settlement
Mechanism are required in order to ensure these issues are resolved and enforced
in a timely manner. Too often, scientifically unfounded SPS and technical issues
have been used to deny market access for our respective nations’ agricultural prod-
ucts.
Perishable and Seasonal Products: We urge the creation of specific rules and proc-
esses for trade in perishable and seasonal products that address the unique nature
of these products.
Export Subsidies: Continued excessive use of export subsidies by the European
Union (EU) erodes the competitiveness and profitability of our agricultural indus-
tries. Therefore, we urge you to work towards the elimination of all direct export
180
subsidies and pursue the substantive and progressive reduction of trade-and produc-
tion-distorting supports worldwide. Current inequities in supports provided by the
EU and other countries must be addressed through establishment of rules that will
lead to faster downward adjustment by these countries.
Food Safety. Food safety is of primary concern to the agricultural industries and
consumers of the three countries. With this in mind, we urge intensified efforts to
educate and inform consumers and regulators on the scientifically-based issues sur-
rounding biotechnology. International regulatory measures must be based on sound
scientific principles and approval procedures for genetically enhanced products must
be effective in ensuring safety. These procedures must not be used as a trade bar-
rier.
Dispute Resolution Measures’. Effective safeguard mechanisms and rapid dispute
resolution measures that do not require expensive litigation are needed. This will
provide another method to current anti-dumping laws which include, in part, “cost
of production” and “market price” tests.
Harmonization of Standards’. The international harmonization of pesticide and
animal drug usage and standards must also be a priority. We must work to har-
monize to the highest possible standards.
The issues outlined above are paramount to the continued viability of our agricul-
tural industries. As you finalize preparations for the WTO negotiations, it is critical
that you extend every effort to improve our trading position and create an environ-
ment that affords increased market opportunities for our producers.
Your immediate attention to these issues is requested and we look forward to your
response.
Sincerely,
Cary Peterson,
President,
National Association of State Departments of Agriculture
United States of America
Jaime Rodriquez Lopez,
President,
Mexican Association of State Departments of Agriculture Development
Mexico
Eric Upshall,
Chair,
Provincial Ministers of Canada
Canada
July 17, 1999
The Honorable Dan Glickman
Secretary
U.S. Department of Agriculture
Washington, D.C.
Dear Secretary Glickman:
Agricultural representatives of 44 states and provinces from the three NAFTA
countries met at the States-Provinces Agricultural Accord in Salt Lake City, July
15-17, 1999. A key objective was to develop common positions for the upcoming
WTO negotiations that will provide increased potential for the profitability and long-
term viability of our producers.
Our countries must adopt a negotiating strate^ that makes agriculture the high-
est priority for the upcoming WTO round. Negotiating strategies that leave the dif-
ficult agricultural issues unresolved will be detrimental to the future growth and
prosperity of our agricultural industries in all three countries. Any WTO agreement
that does not include substantially improved rules in agricultural trade will be
judged a massive failure by our farmers and ranchers.
We urge you to utilize the following recommendations as you work to finalize your
negotiating strategy.
Sanitary I Phytosanitary Issues: The Sanitary/Phytosanitary (SPS) chapter should
remain intact and closed to further negotiation. However, the process supporting the
SPS chapter must be strengthened and effectively enforced in order to ensure WTO
member compliance. Improvements in efficiency of the WTO Dispute Settlement
Mechanism are required in order to ensure these issues are resolved and enforced
in a timely manner. Too often, scientifically unfounded SPS and technical issues
have been used to deny market access for our respective nations’ agricultural prod-
ucts.
181
Perishable and Seasonal Products: We urge the creation of specific rules and proc-
esses for trade in perishable and seasonal products that address the unique nature
of these products.
Export Subsidies'. Continued excessive use of export subsidies by the European
Union (EU) erodes the competitiveness and profitability of our agricultural indus-
tries. Therefore, we urge you to work towards the elimination of all direct export
subsidies and pursue the substantive and progressive reduction of trade-and produc-
tion-distorting supports worldwide. Current inequities in supports provided by the
EU and other countries must be addressed through establishment of rules that will
lead to faster downward adjustment by these countries.
Food Safety. Food safety is of primary concern to the agricultural industries and
consumers of the three countries. With this in mind, we urge intensified efforts to
educate and inform consumers and regulators on the scientifically-based issues sur-
rounding biotechnology. International regulatory measures must be based on sound
scientific principles and approval procedures for genetically enhanced products must
be effective in ensuring safety. These procedures must not be used as a trade bar-
rier.
Dispute Resolution Measures'. Effective safeguard mechanisms and rapid dispute
resolution measures that do not require expensive litigation are needed. This will
provide another method to current anti-dumping laws which include, in part, “cost
of production” and “market price” tests.
Harmonization of Standards'. The international harmonization of pesticide and
animal drug usage and standards must also be a priority. We must work to har-
monize to the highest possible standards.
The issues outlined above are paramount to the continued viability of our agricul-
tural industries. As you finalize preparations for the WTO negotiations, it is critical
that you extend every effort to improve our trading position and create an environ-
ment that affords increased market opportunities for our producers.
Your immediate attention to these issues is requested and we look forward to your
response.
Sincerely,
Cary Peterson Jaime Rodriguez Lopez
President President
National Association of State Departments of Agriculture
United States of America
Jaime Rodriquez Lopez,
President,
Mexican Association of State Departments of Agriculture Development
Mexico
Eric Upshall
Chair
Provincial Ministers of Canada
Canada
Chairman Crane. Your testimony basically supports all the posi-
tions of our U.S. Trade Representative and I am wondering if there
is any area where your perspective differs from the administra-
tion’s views on these issues?
Mr. Jones. Mr. Chairman, we have worked real hard with Am-
bassador Barshefsky and Sue Esserman specifically on the seasonal
and perishable commodities. And uniquely enough we do see eye to
eye on a lot of those issues, and we appreciate their support.
Chairman Crane. Well, I think you have profound insights down
there, especially based upon your legislative liaison behind you, Ni-
cole Waldron, who used to be an intern in my office. And she and
I are alumni of the same little college up in Michigan, Hillsdale,
so you are privileged, Mr. Jones, to have her on your staff.
I want to ask Mr. Lake a question. What does AFLAC stand for?
Mr. Lake. American Family Life Assurance Co. of Columbus.
Chairman Crane. Assurance.
182
Mr. Lake. Yes.
Chairman Crane. Not insurance.
Mr. Lake. Yes, that is correct.
Chairman Crane. Because I have seen it American Family Life
“Insurance” Co., which would be AFLIC, and that is why I was cu-
rious, because my staff does not have the answer to why it is called
AFLAC sometimes and I have never see it as AFLIC.
Mr. Lake. Right.
Chairman Crane. I just want to make sure that you are using
the right acronym there.
At any rate, I congratulate you on the comprehensive nature of
your proposal for achieving the regulatory reform in the service ne-
gotiations and also for working to build support for it among Euro-
pean companies. Has USTR been receptive to your approach?
Mr. Lake. Yes. I think they are studying the paper that was pro-
vided to them, and we are working as an industry — the associa-
tions that are listed in our submission are working very closely
with the USTR. We hope to move forward on that basis.
Chairman Crane. And, Mr. Smith, past attempts to bring labor
issues into the WTO have met with virulent opposition from less
developed countries who believe it will establish a pretext for pro-
tectionist trade restrictions. Is there a way to assure them other-
wise so that the Seattle Ministerial doesn’t become a standoff be-
tween the U.S. and LDCs on labor issues like what happened in
Singapore?
Mr. Smith. Mr. Crane, I don’t know the answer to that. The
question of labor rights, we believe, is one where both the devel-
oped and the developing world have common cause; that the ab-
sence of robust democratic civil society institutions, including trade
unions, is part of what sets the stage for some of the disasters like
we saw in East Asia over the last years, the absence of a society
that could function at all levels.
It is also important, I think — and we have an important job to
do, all of us, in talking to our brothers and sisters in the developing
world — it is important to make the point that in the absence of
widely agreed upon and widely adhered-to standards, we do en-
courage a race to the bottom. We do pit precisely those countries
who can least afford it, whose people can least afford it, who most
need standards which begin to harmonize incomes upward and deal
with income inequality — those countries do not need to be fighting
with each other, and fighting in the way that is most difficult for
their citizens. Pitting the poor people of eastern Africa against the
poor people of Southeast Asia is a crazy way for the world to pur-
sue international trade.
Chairman Crane. What is the AFL-CIO’s key objective in the
Seattle Ministerial?
Mr. Smith. Our key objective is to make substantial progress on
the question of incorporating enforceable labor rights and other so-
cial standards in the WTO regime. The most important step in Se-
attle would be to begin down that road in the creation of a working
group toward that end.
Chairman Crane. Mr. Levin.
Mr. Levin. It is the end of the day, but in some respects I think
we have touched on one of the more important issues in your an-
183
swer, Mr. Smith, to Chairman Crane. I hope everybody will hear.
You say that we meaningfully need to begin to go down the road.
I think people should understand no one is expecting overnight
transformations. One is hopeful, and one can expect a structure
that assures meaningful movement.
I kind of chuckled, Mr. Dawson, when you described so effec-
tively what is at stake with information technology. There will be
controversy about some of these issues. An earlier panelist sug-
gested we shy away from controversy at Seattle. Lord, there has
never been a meaningful trade negotiation that was not embedded
in controversy.
It is going to be difficult. On environmental issues we face a real
struggle over the Kyoto agreement as to the extent to which evolv-
ing economies participate in the evolution — not the revolution, the
evolution of environmental standards. And until that is resolved, I
don’t think the Kyoto agreement will ever get the votes in the Sen-
ate.
I think the same is true of labor market issues and with informa-
tion technology. You are cautious, you do not want us to push
issues before they are ripe, but I take it you want us to press
issues to help make them become ripe. I think we need to do ex-
actly that at Seattle to set the stage.
You know, the issue of taxation in terms of the Internet is a con-
troversial issue internally within this country, and you can just
imagine what is going to happen as we confront it internationally.
And it will be controversial, but we in this country have certainly
faith in the evolution of free markets, and I think they should in-
clude all kinds of market, capital markets and labor markets, and
I think increasingly that will have to be true of information tech-
nology.
And I think we will expect some resistance, right?
Mr. Dawson. I did not mean to paint a picture that was without
controversy.
Mr. Levin. I am agreeing. I think it will be controversial.
Mr. Dawson. We are not cattle or bananas yet, though, I must
admit.
Mr. Levin. No, but it could happen quickly.
Mr. Dawson. Yes.
Mr. Levin. I am not sure of that analogy, but we are having im-
mense trouble with bananas and cattle, and I suspect the notion
we had trouble at Singapore, so do not even unfold our tent, that
is nonsense in the labor market issues. And the same is going to
be true of the burgeoning information technology issues. They are
doomed to be controversial because they are meaningful, right?
And we have to figure out how far we want to go at Seattle. Expect
resistance. But we have in mind the evolution of markets in terms
of information technology.
But I need to go and leave and see if I can get a ticket for my
grandson on the Internet so I can take him back to Michigan.
Through a travel agency.
But anyway, Mr. Chairman, this has been a very useful hearing,
and I think this last panel has really raised some vital issues, and
we need to be in much further discussion.
184
Mr. Pepper, while he was here, talked to Mr. Smith about this
group within ACTPN chaired by Mr. Sweeney, Mr. Donahue, and
we wish them the best.
Mr. Smith. Controversy is never very far away, but we are work-
ing at it hard.
Mr. Levin. Good luck.
Chairman Crane. Could I add one quickie to some of Sandy’s in-
quiries? Is there a chance that our trading partners will seek to de-
fine electronic commerce as a service rather than a good in order
to escape the more rigorous guidelines and requirements?
Mr. Dawson. Yes. We are trying to lead them down a track that
is difficult because we are describing it as being neither. Actually
it is something quite different. And so that in and of itself is a sub-
stantial part of our educational effort, that things can be a me-
dium, a product, a good at one point, and they can be converted in
commerce to a service. And it is a more exotic existence than what
we are used to in this kind of binary world of goods and services.
Chairman Crane. Well, there are more rigorous disciplines that
apply to goods. That is why I was curious.
Well, gentlemen, I want to thank you all for your participation.
And as I told an earlier panel, please keep the channels of commu-
nication going, because this is an ongoing battle, and it is not even
going to be totally resolved in Seattle come the end of November
or early December. But at least, God willing, and thanks to your
input, we will make progress. Thank you all.
[Whereupon, at 3:40 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
AD Hoc WTO Round Processed Food Coalition
Washington, DC 20006
August 4, 1999
A.L. Singletion, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Re: WTO Seattle Ministerial
Dear Mr. Singleton:
On behalf of the Ad Hoc WTO Round Processed Food Coalition, the following July
22, 1999 letter was sent to Ambassador Charlene Barshefsky relevant to the Seattle
Ministerial and forthcoming multilateral trade negotiations. This letter is provided
the Subcommittee on Trade in response to its July 8, 1999 request for private sector
views relevant to the captioned subject.
Ad Hoc WTO Round Processed Food Coalition
Washington, DC 20006
July 22, 1999
Honorable Charlene Barshefsky
U.S. Trade Representative
Office of the U.S. Trade Representative
600 17th Street, N.W.
Washington, DC 20508
Subject: Ad Hoc WTO Round Processed Food Coalition/ Recommendations for the
Seattle Ministerial and New Round of WTO Negotiations.
Dear Ambassador Barshefsky:
We, the undersigned trade associations and food companies, are writing to under-
score the priority that should be given at the Seattle Ministerial and forthcoming
185
World Trade Organization (“WTO”) negotiations to liberalizing trade in the proc-
essed food sector. Further, this letter provides specific recommendations with re-
spect to the scope, structure, and negotiating modalities that should be pursued in
this important export sector to U.S. farmers, workers, and the American economy
overall.
Trade Liberalization in the Food Sector.
The U.S. food processing sector recognizes that the major achievement of the Uru-
guay Round was to introduce fundamental trade disciplines into the agriculture and
food processing area. These new disciplines included the conversion of non-tariff
measures to tariffs, the binding of tariffs at maximum levels, and rules on the use
of sanitary and phytosanitary (SPS) measures.
However, only minimal improvements in market access were actually achieved in
the Uruguay Round. In some cases, conversion of non-tariff measures to tariffs actu-
ally increased the degree of protection provided to processed foods. The complex tar-
iff formulas adopted by some countries, particularly the nations of the European
Union, impose high, variable tariffs based on standard “recipes” that may bear little
resemblance to the actual composition of a processed food product.
Despite the existence of significant market access barriers, world trade in proc-
essed food products is increasing twice as fast as trade in primary commodities. By
2000, trade in processed and value-added products is predicted to account for 75
percent of global agrifood trade. A range of economies, including net food importing
countries, now export processed foods.
Value-added consumer-ready food exports have a greater positive impact on the
U.S. economy than hulk commodity exports. In 1998, U.S. consumer-ready processed
food exports to the world accounted for 39 percent of the total $51 billion of “agricul-
tural” exports. For the first, time, the value of consumer-ready exports was equal
to that of bulk agricultural commodities.
Further processed products create high-paying jobs and value in the United
States. Seven of the largest 10, and 22 of the largest 50, food processing firms in
the world are headquartered in the United States. U.S. farmers and their families
are a major beneficiary of increased exports of processed food products, both through
farm sales and off-farm employment opportunities. For example, 1.9 billion pounds
of U.S. -grown potatoes were purchased and further processed into exports of $286
million in french fries in 1997.
U.S. exports of processed foods would be even higher but for market access bar-
riers. Globally, tariffs on processed foods remain higher than those on basic agricul-
tural commodities, and higher than those on industrial products. Bound agricultural
tariffs average over 40 percent ad valorem, and tariff bindings on processed foods
average significantly more than 40 percent.
Recommendations for the Seattle Ministerial and WTO Negotiations.
The next round of trade negotiations will provide an opportunity to capitalize on
the fundamental restructuring of the trade rules for food and agriculture. Strong op-
position to lowering trade barriers is already apparent, and countries such as Japan
and Norway — which fear low incomes and declining employment in agriculture —
have positioned themselves to fight against further liberalization. The United States
must take the lead in combating this opposition and insisting that further liberaliza-
tion take place.
The highest priority for the United States should be commercially meaningful re-
ductions (including zero-for-zero in certain tariff lines) in tariffs and further dis-
ciplines on non-tariff measures (NTMs) facing U.S. exports of highly competitive
processed food exports. Such products include processed cereal products (e.g., cook-
ies, crackers and snack foods); pet food; processed vegetable and fruit products (e.g.
soups, french fried potatoes, juices and sauces); processed meat and poultry prod-
ucts; and certain miscellaneous food preparations (e.g. formulated protein mixes and
nutritional supplements).
1. Tariffs.
• The United States should insist on a formula that will lead to significant reduc-
tions in tariff peaks, rather than a simple percentage reduction across the board.
There is ample precedent for formula cuts in the industrial product area. The so-
186
called “Swiss formula” ^ was used for industrial goods during the Tokyo Round.
There are any number of other ways in which such reductions can he achieved, in-
cluding the harmonization of tariffs at certain levels or in certain hands.
• A formula approach that cuts high tariffs more than low tariffs will help ad-
dress “tariff escalation.” Tariff escalation occurs where tariffs for processed products
are high compared to the primary products from which they are derived. Tariff esca-
lation still prevails in important product chains in many countries, impeding im-
ports of processed products.
• Reducing high tariffs more than low tariffs will also help reduce the gaps and
address the distortions that are created when countries have very high bound tariff
rates, but apply actual tariff rates below the bindings. Countries often adjust these
applied rates to protect domestic production from market price signals.
• The United States should argue strongly for the simplification of tariff struc-
tures. Complex formulas and tariffs based on “standard recipes” should be elimi-
nated and replaced by straightforward ad valorem tariffs which are fair and con-
sistent with free trade principles.
• Countries must not be permitted to “average” tariff reductions in specific food
and agricultural commodities to achieve agreed reductions. Averaging allows coun-
tries to make high percentage reductions on already low tariffs, and lower percent-
age reductions on lines with higher tariffs. In order to achieve meaningful improve-
ments in trading opportunities, the reverse should occur: the greatest reductions in
tariffs must occur where tariff levels are the highest.
• Request-offer negotiations are not an acceptable negotiating option. In past nego-
tiations, such an approach resulted in little improvement in overall market access
or in disciplining trade barriers. Request-offer negotiations do not systematically ad-
dress the problems of tariff escalation nor do they assure that very high tariffs will
be reduced at all. However, should the United States ultimately find it necessary
to engage in request-offer negotiations, efforts should be concentrated on processed
food product commitments by nations in the Asia Pacific and South American re-
gions. Despite recent economic difficulties, these regions show the greatest promise
for intermediate-term processed product export opportunities.
• The focus of U.S. negotiations should be to obtain significant multilateral com-
mitments for food and agriculture as a whole. However, the Ad Hoc Coalition would
also support a “zero-for-zero” ^ approach for specific product sectors such as soups,
french fried potatoes, biscuits and snack foods, and pet food.
• “Nuisanee Tariffs” (e.g. below 2 percent) should be eliminated. The Administra-
tive costs to collect these tariffs exceed the revenue generated and are a hindrance
to commerce.
• The next Round of multilateral negotiations should eliminate all tariff-rate-
quotas on agricultural products. This would complete efforts achieved in the Uru-
guay Round to progressively liberalize and limit the use of tariff-rate-quotas. How-
ever, the process of converting tariff-rate quotas to tariff equivalents should not re-
sult in a reduction in market access.
2. Non-Tariff Barriers to Trade.
• The WTO Agreement on Sanitary and Phytosanitary (“SPS”) Measures — which
insists on sound science and risk assessment — should not be open for negotiation in
the new Round.
• However, the Agreement on Technical Barriers to Trade should ensure that
standards for biotechnology be based on sound science and not used as a disguised
non-tariff trade barrier.
• The U.S. government should support technical assistance to developing coun-
tries, many of which lack the expertise to comply with SPS measures, labeling and
technical standards of trade.
3. Key Participation by Developing Countries.
• Developing countries such as India must participate fully in the negotiations
and provide improved access opportunities for processed food products. Consider-
ation might be given, e.g., to modified tariff reduction commitments and extended
implementation periods, but exemptions should not be permitted.
^The “Swiss formula” is new tariff=(old tariff * agreed coefficient)/{old tariff +agreed coeffi-
cient). Such a formula not only reduces the highest tariffs the most, but it also establishes an
upper bound on all tariffs (depending on the coefficient chosen).
2 The “zero-for-zero” approach is one in which countries agree that all tariffs on a group of
specific products will be reduced to zero. During the Uruguay Round, such an agreement was
successfully concluded for beer.
187
4. Services, Investment and Intellectual Property.
• The Ad Hoc Coalition also supports renewed negotiations in the areas of serv-
ices, investment and intellectual property. Enhanced agreements should guarantee
freedom of sale, transport, and all forms of distribution (including direct selling);
protect U.S. investments in the food processing, distribution and sales sectors of
other nations; and protect U.S. brands and trademarks. Without such guarantees,
improvements in market access will be meaningless.
• Moreover, as famous U.S. brands become more globally dominant in the 21st
century, we will witness an increase in efforts by developing countries to unfairly
tax U.S. brands at higher rates than local brands and competing products. Such dis-
criminatory taxation is a particularly serious problem facing the U.S. soft drink in-
dustry and should be addressed in the next Round of WTO negotiations.
We look forward to working with you as we approach the Seattle Ministerial and
begin negotiating in 2000. With your support and leadership, the upcoming negotia-
tions will at long last result in meaningful benefits for the U.S. food sector. We
stand ready to provide whatever assistance might be appropriate.
Sincerely,
Bestfoods
Campbell Soup
ConAgra
General Mills
Herbalife International
J. R. Simplot Co.
Lamb-Weston
National Food Processors Association
National Potato Council
Nestle USA
Oregon Potato Commission
Pepperidge Farm
PepsiCo
Pet Food Institute
Procter & Gamble
Ralston Purina
Tricon Global Restaurants
Welch’s
Wm. Wrigley Jr. Company
Respectfully submitted on behalf of the Ad Hoc WTO Round Processed Food
tion,
John F. McDermid
President, IBC,
Coali-
Inc.
Statement of the Aluminum Association, Inc.
Mr. Chairman and Members of the Trade Subcommittee:
The Aluminum Association appreciates the opportunity to present its views on the
U.S. negotiating objectives for the WTO Seattle Ministerial Meeting.
The members of The Aluminum Association are domestic producers of primary
and secondary ingot, aluminum mill products and castings. Mill products include
sheet and plate, foil, extrusions, forgings and impacts, electrical conductor, and wire,
rod and bar. The membership also includes producers of master alloys and additives
and aluminum pigments and powders.
The association is a primary source for statistics, technical standards and infor-
mation on aluminum and the aluminum industry in the United States. Member
companies operate approximately 300 plants in 40 states.
Overview
The members of the Aluminum Association are fully committed to a fair and open
world market for aluminum. We believe strongly that tariff elimination or reduction
should occur only as the result of the mutual agreement of all the parties to a tariff
negotiation, such as the up-coming WTO Seattle Round, and only over a multi-year
phase-in period.
Background
The aluminum industry is global. The largest aluminum producers are multi-
national companies production, fabricating and distribution facilities around the
world. During 1998, world aluminum production totaled an estimated 22.1 million
metric tons.
The leading producing countries include the United States, Russia Canada, the
European Union, China, Australia, Brazil, Norway, South Africa, Venezuela, the
Gulf States (Bahrain and United Arab Emirates), India and New Zealand; together
they represent more than 90 percent of the world primary aluminum production.
188
The major uses for aluminum are transportation, packaging and building and con-
struction and the largest markets are North America, Europe and East Asia.
The U.S is both a major importer and exporter of aluminum. Approximately 31
percent of the U.S. supply of aluminum was imported from foreign producers in the
in the form of primary ingot and scrap from Canada, Russia, Venezuela and Mexico
and mill products from Canada and the EU. U.S. exports amounted to 13 percent
of U.S. producer shipments in the form of ingot, scrap and mill products primarily
to Canada, Mexico and East Asia including Japan and Latin America.
Excluding NAFTA trade, the EU accounted for approximately 55 percent of U.S.
mill products imports and only 17 percent of U.S. exports. East Asia (China, Hong
Kong, Japan, Korea and Taiwan) accounted for 16.6 percent of U.S. imports and
consumed 30 percent of U.S. exports. Latin America accounted for 10 percent of U.S.
imports and 40 percent of U.S. exports.
A substantial part of U.S. exports to the EU are shipments which are duty free
under the Civil Aircraft Agreement.
The attached tables provide comparisons of U.S. aluminum imports and exports
for 1998 by region.
Analysis
The members of The Aluminum Association are firm believers in the objective of
trade liberalization. They have long supported open and fair trade. They have seen
the benefits from the elimination of tariffs and non-tariff measures under NAFTA
and from the decision by the government of Japan in 1987, to achieve parity with
U.S. tariffs on aluminum ingot, scrap and sheet and plate.
The members of the association fully understand that the Agreement on Civil Air-
craft, which provides for duty free access to the EU for aircraft parts, has enabled
them to compete for business in the EU aircraft market.
The potential growth of markets in Asia and Latin America promises opportuni-
ties now and, even more so, in the future. The realization of that potential can only
be redeemed when tariffs and other impediments to access to those markets have
been significantly reduced or eliminated.
As circumstances now stand, that realization will be delayed as long as high tar-
iffs are maintained on aluminum and products made with aluminum.
U.S. tariffs range from zero on ingot and scrap to 2.7 to 6.5 percent on most mill
products. The tariff on aluminum can sheet, which is the largest single aluminum
mill product consumed in the U.S. is three percent. By contrast EU aluminum tar-
iffs are six percent on ingot and 7.5 percent on mill products. Tariffs in Japan are
zero on ingot, the same as the U.S. for some categories of sheet and plate and 7.5
percent or more on all other mill products. For most developing countries aluminum
tariffs are in excess of 10 percent with many significantly higher than that.
Conclusion
It is highly unlikely that any of our trading partners will voluntarily reduce their
bound aluminum tariffs, except as the result of an agreement reached during trade
negotiations. Therefore, we recommend that, with respect to aluminum, the objec-
tive of the WTO Seattle Ministerial Meeting be to achieve:
an agreement by all major aluminum producing and consuming countries
to eliminate tariffs and other impediments to trade in aluminum
by phasing out those tariffs or other impediments, over a reasonable pe-
riod of time, by a date certain, to be determined through multilateral nego-
tiations.
We thank you for this opportunity to express our views.
ATTACHMENT
U.S. Aluminum Exports by Region — 1998
(Millions of Pounds)
Region
Total
Ingot
Scrap, & Dross
Mill Products
North America
2,328
445
480
1,404
Latin America
320
6
3
311
European Union
143
8
5
131
Other Europe
12
*
11
East Asia
834
146
457
231
Other Asia
86
3
9
74
Oceania
13
1
12
189
U.S. Aluminum Exports by Region — 1998 — Continued
(Millions of Pounds)
Region
Total
Ingot
Scrap, & Dross
Mill Products
Africa
5
*
5
Total
3,743
610
954
2,179
ASource: U.S. Department of Commerce
U.S. Aluminum Imports by Region — 1998
(Millions of Pounds)
Region
Total
Ingot
Scrap, & Dross
Mill Products
North America
5,043
3,177
794
1,072
Latin America
604
389
139
75
European Union
469
37
58
374
Other Europe
1,679
1,541
73
65
East Asia
164
49
10
105
Other Asia
180
79
69
33
Oceania
151
144
1
6
Africa
52
34
2
16
Total
8,342
5,449
1,146
1,747
ASource: U.S. Department of Commerce
Joint Statement of the American Crop Protection Association; American
Forest and Paper Association; American Plastics Council; Biotechnology
Industry Organization; Chemical Manufacturers Association; Chemical
Specialties Manufacturers Association; Coalition for Truth in Environ-
mental Marketing Information; National Association of Manufacturers;
National Fisheries Institute; National Foreign Trade Council; Soap and
Detergent Association, New York, NY; and U.S. Council for International
Business, New York, NY; joint statement and attachments
The undersigned business organizations welcome the opportunity to share our
thoughts with the House Ways and Means Trade Subcommittee on an important
trade and environment issue likely to arise in the forthcoming WTO negotiations,
namely the “Precautionary Principle.” The Subcommittee has invited such com-
ments in the context of your review of the objectives for the Seattle WTO Ministerial
and the outlook for a successful meeting. We applaud the Subcommittee for reaching
out to the private sector, and hope these comments will be helpful to your work.
We expect the Precautionary Principle will be a topic of discussion at the WTO
Ministerial, given, among other things, the European Union’s announced intention
to seek “a clarification of the relationship between multilateral trade rules and core
environmental principles, notably the Precautionary Principle.”
It is important to note at the outset that the business community supports the
use of caution and sound science in developing health and environmental standards.
Indeed, the risk assessment principles and risk management that U.S. authorities
apply to food, finished products, and other goods are extensive and include many
types of precaution. The critical factor is that such standards are risk-based and jus-
tified by sound science.
The business community supports sound science and risk based precautionary
measures which are cost effective, in line with the Principles of the Rio Declaration
agreed at the Earth Summit in 1992. That Declaration also stated that unilateral
trade measures should be avoided, and international consensus should be sought
(Rio Declaration Principles 12 and 15 attached as Annex 1).
Since 1992, multilateral agreements such as the Convention on Prior Informed
Consent, the Sanitary and Phyto-Sanitary (SPS) Agreement and the Plant Protec-
tion Convention have been put in place precisely to provide the kind of foresight en-
visioned by the Precautionary Principle, but with the power of international con-
sensus and systematic processes to better enable broad, global protections.
The undersigned groups are concerned that the Precautionary Principle — as it is
being applied in Europe and advocated by activist groups — is both a misinterpreta-
tion of the principle and a radical departure from science and risk-based regulation
190
which could impede innovation and progress. Under such an interpretation, any as-
sertion of harm or hazard — however remote the potential for harm or however flim-
sy the evidence to support the assertion — justifies restricting or eliminating the use
of a product. Meanwhile, certain industry sectors would be unfairly obliged to bear
the resulting added costs of disproving alleged risks. If adopted, such a policy would
cause the elimination of many beneficial products based solely on a mere assump-
tion of hazard. Sound science and risk-based decision making would be crowded out.
Against that background, a number of U.S. business and farm groups joined to
express their concerns about international developments regarding the Pre-
cautionary Principle in an April 14 letter to Ambassador Barshefsky {Annex 2). That
letter asked the U.S. government to reject any version of the principle that does not
rely on a risk assessment-based, science-justified approach, both in the WTO and
in specific agreements and forums such as the SPS Agreement and the Biosafety
Protocol of the U.N. Biodiversity Convention.
In that letter, business and farm groups stated:
“We recognize that uncertainty and risk are inherent in policymaking, and we
support cooperative international efforts involving both the public and private sec-
tors to develop scientific data that would improve the accuracy and relevance of risk
assessments and harmonize methodology and quality assurance.”
We have seen U.S. products that have been thoroughly assessed as safe by U.S.
regulatory authorities, among the most highly developed and stringent in the world,
rejected by other countries because of claimed and often unsubstantiated environ-
mental and health concerns about the alleged absence of sufficient science, while cit-
ing the Precautionary Principle as justification.
Business is deeply concerned that a number of groups and countries seek to in-
voke a misconstrued version of the Precautionary Principle as an absolute standard,
overriding all others, to prevent well-justified human activities wherever any vestige
of risk can be asserted, even speculatively. This abuse of the principle is counter
to longstanding public policy, past human accomplishment and future human aspi-
rations.
The Precautionary Principle is but one of a number of well-recognized principles
and factors that must be considered in uncertain situations that credible scientific
evidence shows could pose a risk of serious or irreversible damages. These include
consideration of the degree of uncertainty, the magnitude and possible consequences
of risk, the ability to manage the risk, and analysis of whether or not proposed pre-
cautionary responses are effective, feasible, cost-effective, and fair.
In Seattle, the U.S. government delegation should advocate the essential impor-
tance of a sound risk and scientific foundation for environmental standards and en-
vironmentally-based restrictions on trade. Application of the Principle must recog-
nize the science that is available even where 100% scientific certainty is not and
may never be. Efforts to invoke the Precautionary Principle in the absence of any
scientific information, or worse yet, with selective avoidance of scientific informa-
tion, can only invite unnecessary conflict. Those who misuse the Precautionary Prin-
ciple to add to public fears about product safety, without credible and widely recog-
nized scientific evidence, mislead consumers, waste public resources and increase
trade tensions.
Therefore, the U.S. government should oppose strongly any effort to redefine the
Precautionary Principle in a way that permits the circumvention of sound scientific
and risk information and international consensus. In particular, the U.S. should
block any effort to accept or codify the misuse of the Precautionary Principle, as the
European Union is doing in the case of products containing Genetically Modified Or-
ganisms. The U.S. government should emphasize that application of the Pre-
cautionary Principle must be structured around:
1. Sound Science, International Dialogue and Mutual Recognition of
Standards;
2. Sound Risk Assessment, Management, and Communication;
3. Timely, Transparent and Non-Discriminatory Regulatory Procedures
which are responsive to new scientific developments;
4. Credible Sources of Environmental and Health Information;
U.S. business has consistently called for multilateral, cooperative approaches to
international environmental issues, and warned that unilaterally imposed trade re-
strictions endanger economic prosperity, human health and environmental protec-
tion. That position also has the full support of bodies such as the International
Chamber of Commerce, the voice of international business.
The Seattle WTO Ministerial offers a valuable opportunity to reaffirm the impor-
tance of sound science and risk assessment in a rules-based trading system. Deci-
sions to apply the Precautionary Approach will then be made in the best interests
191
of the environment and the public in ways that are cost effective and consistent
with international trade disciplines.
Trade and environmental policies should be rooted in sound science and risk as-
sessment and not be driven by unsubstantiated allegations, scare tactics, and polit-
ical gamesmanship, as has been the case too often outside the U.S., and especially
in Europe. It is our hope that the U.S. government delegation in Seattle will use
this opportunity to ensure that the inappropriate application of the Precautionary
Principle does not spread throughout the WTO.
We understand that USTR made a statement last week pertaining to these issues.
We encourage USTR and the Administration to consult with business on how to ad-
dress the role of the Precautionary Principle in international trade policy and hope
the Congress will support a transparent and balanced discussion of the U.S. govern-
ment position on this question as is warranted by its economic and environmental
impacts.
Endorsed by :
American Crop Protection Association
American Forest and Paper Association
American Plastics Council
Biotechnology Industry Organization
Chemical Manufacturers Association
Chemical Specialties Manufacturers Association
Coalition for Truth in Environmental Marketing Information
National Association of Manufacturers
National Fisheries Institute
National Foreign Trade Council
Soap and Detergent Association
U.S. Council for International Business
The Rio Declaration on Environment and Development
Principle 12
States should cooperate to promote a supportive and open international economic
system that would lead to economic growth and sustainable development in all
countries, to better address the problems of environmental degradation. Trade policy
measures for environmental purposes should not constitute a means of arbitrary or
unjustifiable discrimination or a disguised restriction on international trade. Unilat-
eral actions to deal with environmental challenges outside the jurisdiction of the im-
porting country should be avoided. Environmental measures addressing
transboundary or global environmental problems should, as far as possible, be based
on an interesting consensus.
Principle 15
In order to protect the environment, the precautionary approach shall be widely
applied by States according to their capabilities. Where there are threats of serious
or irreversible damage, lack of full scientific certainty shall not be used as a reason
for postponing cost-effective measures to prevent environmental degradation.
April 14, 1999
The Honorable Charlene Barshefsky
United States Trade Representative
600 17th Street, N.W.
Washington, DC 20508
Dear Madam Ambassador:
The United States Council for International Business (USCIB) and a number of
the other under-signed organizations were pleased to attend the recent World Trade
Organization’s (WTO) High-Level Symposium on Trade and Environment. Govern-
ments, business, and non-governmental organizations that participated had a useful
exchange of views on a wide range of issues relating to the interface between envi-
ronment and trade issues and policies.
While we found the Symposium worthwhile, we were concerned by the U.S. Gov-
ernment (USG) delegation’s statements on the Precautionary Principle and non-
product related Processing and Production Methods (PPM’s). First of all, both in the
192
March 16-16 Statement (attached) and in other discussions, the USG seemed to en-
dorse a broader application of the Precautionary Principle, even if the Principle
itself was not always explicitly mentioned. Secondly, USG statements also appeared
to signal a blanket acceptance of the use of non-product related PPM’s in environ-
mental labels in a way that would set the stage for trade discrimination. In our
view, these statements raise considerable doubt about the consistency of U.S. trade
policy, especially in light of the government’s strong stance in the beef hormone case
and in other current trade disputes and international negotiations. Let us address
these two issues in greater detail.
Precautionary Principle
We recognize that uncertainty and risk are inherent in policymaking, and we sup-
port cooperative international efforts involving both the public and private sectors
to develop scientific data that would improve the accuracy and relevance of risk as-
sessments and harmonize methodology and quality assurance. We believe the USG
should reject any interpretation of the Precautionary Principle that does not rely on
a risk-based, science-justified approach in the WTO and in specific agreements and
forums such as the Sanitary and Phyto-Sanitary (SPS) Agreement and the Codex
Alimentarius. We are concerned that the U.S. government’s characterization of the
Precautionary Principle at the High-Level Symposium would seemingly undermine
the fundamental importance of sound science as a basis for environment and other
regulation.
As you well know, U.S. trade has suffered substantially from trade restrictive
measures by other countries which have based their actions on unacceptable inter-
pretations of the Precautionary Principle, as Europe has done in the beef hormone
case. Similar challenges face U.S. business in trade of biotechnology products with
Europe, in the Biosafety Protocol negotiations, and in European environmental la-
beling programs. These examples demonstrate all too clearly how interpretations of
the Precautionary Principle which neglect scientific considerations can prevent le-
gitimate trade in products whose risks can be identified and managed.
PPM’s and Environmental Labeling
The 1995 Report on Trade and Environment to the OECD Council at Ministerial
Level made several important points relating to PPM’s, which we believe are still
appropriate. That report stated explicitly that:
“When PPM’s affect the characteristics of products, existing trade rules clearly
permit the use of PPM-based trade measures, subject to agreed disciplines. How-
ever, multilateral trade rules and disciplines make no provision for, and have been
interpreted not to allow for, import restrictions based on characteristics which are
not physically embodied in the imported products and therefore do not impact on
the environment in the importing country.”
The report had two specific findings or recommendations with respect to PPM’s:
• OECD Governments agree that environmental concerns related to PPMs that
have transboundary or global environmental effects are best addressed through
international cooperation.
• A further examination of the appropriate and effective role of PPM-based trade
restrictions in MEAs is necessary.
Given that no such study has taken place and no international consensus exists
on the proper role of non-product related PPM’s within the international trading
system, any USG position which condones their use outside of MEAs founded on es-
tablished trade disciplines, as implied by USG statements at the High-Level Sympo-
sium, would be premature and create a dangerous precedent.
Regarding environmental labeling, we believe that such labels can provide factual
information which enables consumers to make informed purchasing decisions. Re-
grettably, most environmental labeling programs take the form of multi-criteria la-
bels, developed and awarded through a non-scientific, largely political process. In
the absence of an accepted scientific methodology that can fairly distinguish and jus-
tify the overall environmental preferability of individual products within entire cat-
egories, such labels have questionable environmental benefits. While voluntary, they
can still create unfair competitive advantage and pose discriminatory trade barriers,
especially when the labels’ criteria are based upon PPM’s. Therefore, we believe that
the Agreement on Technical Barriers to Trade (TBT) should emphasize sound
science and transparency and discourage non-product related PPM’s as a component
of environmental labeling. These recommendations also pertain to any consideration
of labeling for products derived from biotechnology.
In conclusion, we believe the USG should advocate and pursue sound-science
based multilateral responses to international environmental challenges, including
PPM’s, without restricting trade. The USG views expressed at the Symposium ap-
193
pear to represent a major shift in U.S. policy away from these important principles.
We would appreciate confirmation that the U.S. government’s statements should not
be read to detract from our strong support for the trading system and strict adher-
ence to the principles of the WTO.
Sincerely,
The American Bakers Association
The American Farm Bureau Federation
The American Forest and Paper
Association
The Biotechnology Industry Organization
The Chemical Manufacturers Association
The Grocery Manufacturers Association
The National Association of
Manufacturers
The National Fisheries Institute
The National Foreign Trade Council
The National Mining Association
The United States Council for
International Business
Enel.
CC: Madeleine K. Albright, Secretary of State
William M. Daley, Secretary of Commerce
Daniel R. Glickman, Secretary of Agriculture
Carol M. Browner, Administrator, Environmental Protection Agency
Linkages Between Trade and Environmental Policies
Statement of the United States
As we noted in our earlier intervention, in the WTO’s Preamble, Members recog-
nize that trade is not an end in itself and that sustained economic growth must be
pursued in the broader context of sustainable development, which integrates eco-
nomic, social and environmental policies. Moreover, the linkages between trade and
environmental policies are multifaceted. Nevertheless, we believe that economic de-
velopment and stronger protection of the environment go together. Experience has
shown that greater attention to environmental concerns is directly correlated with
better economic results at the national, industry and company levels.
The relationship between the trading system and environmental regulations is an
issue of particular importance to environmental policymakers and regulators in our
respective countries. Modern trade agreements, of course, apply to domestic heath,
safety, and environmental regulations in many ways. Also, we must recognize that
regulatory choices often involve difficult judgement calls on complex matters as to
which particular environmental policy tool is most appropriate in achieving a soci-
ety’s desired environmental policy objective. Not only the science but the analysis
of different regulatory alternatives is complex. In the United States, this process of
choosing a regulatory tool generally includes an extensive process of public partici-
pation and political accountability at the domestic level.
In view of all of this, it is essential that WTO rules recognize and are fully con-
sistent with the needs of
regulators to take action to stringently protect health, safety and the environ-
ment. It is necessary to ensure that obligations under international trade agree-
ments do not hamper, but rather are supportive of, the ability of governments, at
central and sub-central level, to maintain and enforce high levels of domestic protec-
tion that they deem appropriate.
As President Clinton said at last May’s WTO Ministerial Conference, “Inter-
national trade rules must permit sovereign nations to exercise their right to set pro-
tective standards for health and safety, the environment and biodiversity. Nations
have a right to pursue these protections, even when they are stronger than inter-
national standards.”
We note that WTO Agreements specifically recognize the sovereign rights of Mem-
bers to determine the level of protection that their standards are designed to
achieve. This is important and must be maintained. In order to adequately protect
the health of our citizens, we must maintain our right to ensure that products that
enter our country meet our requirements.
194
One agreement of particular importance to health, safety and environmental pol-
icy makers is the Agreement on Sanitary and Phytosanitary measures. Again, there
are a number of provisions in this agreement that are particularly important to reg-
ulators. This includes the Agreement’s provisions recognizing the rights of countries
to maintain pre-approval requirements. As a matter of U.S. law and practice, for
example, certain products (e.g., pesticides) must be approved before they can be
marketed. We have adopted this approach in recognition of the fact that pesticide
residues on foods may pose risks to health or the environment. In order to obtain
approval to sell or distribute a pesticide, pesticide producers must provide sufficient
data to enable regulators to determine that there are no unreasonable adverse ef-
fects on public health or the environment.
It is also important that the SPS Agreement recognizes the right of countries to
take provisional measures in cases where relevant scientific information is insuffi-
cient. This point is particularly important as policy makers often operate at the cut-
ting edge of scientific information. To achieve our health, safety, and environmental
objectives, it is a reality that we must be able to make decisions and take environ-
mentally protective actions in the absence of full scientific certainty.
The need to fully address regulators’ needs and concerns does not, of course, mean
that we condone trade protectionist measures that are disguised as environmental
measures — indeed, such measures would have the effect of casting doubt upon, and
even undermining, environmental as well as trade policy objectives.
Turning to the issue of the relationship between WTO rules and multilateral envi-
ronmental agreements, or MEAs, our point of departure is that all WTO members
are committed to multilateralism. As stated in the report of the CTE to the Singa-
pore Ministerial Conference, “WTO Agreements and multilateral environmental
agreements (MEAs) are representative of efforts of the international community to
pursue shared goals, and in the development of a mutually supportive relationship
between them due respect must be afforded to both.” There can be no doubt that
the relationship between the WTO and MEAs is a partnership of equals.
Clearly, it is important that MEAs be able to achieve their objectives, including
through the use of trade measures, while at the same time being mindful of multi-
lateral trade disciplines. To date there has never been any dispute concerning the
provisions of an MEA. The past is not always a reliable predictor of the future.
However, we believe that there is substantial flexibility under WTO rules to address
environmental challenges through MEAs. Also, we believe that the possibility of
conflict can be substantially reduced through policy coordination at the national
level. Nevertheless, we must be sure that there is no doubt that we as WTO mem-
bers support the efforts of environmental negotiators in cooperating to address envi-
ronmental challenges of common interest.
Turning to ecolabeling, it is broadly recognized that ecolabels can be an important
tool for engaging consumers in environmental protection. At the same time, from
both an environmental and trade perspective, it is important that such measures
not be misused as a hidden form of protectionism. We believe that the WTO rules
provide sufficient flexibility to permit all forms of ecolabeling, including those in-
volving criteria based on processes and production methods, subject to appropriate
trade disciplines of the multilateral trading system, including in particular trans-
parency and non-discrimination. More generally, we think it is clear that the rules
of the multilateral trading system can permit the application of innovative environ-
mental policy tools.
One way of helping to ensure that ecolabels meet their environmental objectives
in a way that is mutually supportive of trade objectives is to provide transparency
in the design of ecolabeling programs, the selection of products to be covered by
ecolabeling, the selection of criteria for receipt of an ecolabel and the design of any
conformity assessment procedure. That means there should be full transparency
with an opportunity for public input at each critical stage of the program’s develop-
ment.
The issue of measures based on processes and production methods (PPMs) has
been an important and controversial issue on the trade and environment agenda.
We would note that the Appellate Body report in the Shrimp/Turtle dispute belies
the notion that such measures are a priori out of bounds under WTO rules. How-
ever, that report also makes clear that such measures must meet the rules of the
trading system which guard against abuse. Without arguing the pros and cons of
the specific measures at issue in the dispute, we wish to point out that the Appel-
late Body has helped shed important light on the application of WTO rules in this
area.
Looking towards the future, we must look for innovative ways to ensure that
WTO rules strike the right balance — promoting free trade in a manner consistent
with and supportive of high environmental standards. As we noted earlier, we be-
195
lieve that as we embark on the next round of WTO negotiations, it would be useful
to provide a forum where WTO members can identify and discuss links between ele-
ments of the negotiating agenda and the environment. While negotiations on these
issues would be the responsibility of the relevant negotiating groups, the proposed
forum would help ensure that these links receive the attention that they deserve
during the negotiations and help delegations to look at what they are negotiating
from a broader perspective. We believe that the GTE could play this role. It has al-
ready shown its capability to take on work along these lines through its work in
analyzing the potential environmental benefits of trade liberalization in various sec-
tors.
The idea would be for the GTE to look systematically and transparently at all the
various areas of negotiation on a rolling basis. After an initial run through of all
the areas under negotiation, the GTE would continue to look at all of the issues so
that the work of the GTE could evolve as the negotiations evolve. The GTE would
identify and discuss issues, but not try to reach conclusions or negotiate these issues
in the GTE itself. Rather, it would provide a report of its discussions to Members
and the relevant negotiating groups. We would expect that the GTE’s work would
play a valuable role in providing input to deliberations at the national level on posi-
tions to be taken in the actual negotiating ^oups. Of course, we would have to be
absolutely clear that the GTE’s role in identifying issues would not detract from, or
interfere with, in any way the responsibilities of negotiating groups for addressing
issues that are raised by Members on these or any other issues.
Statement of the Ameriean Free Trade Assoeiation (AFTA), Miami, Florida
This testimony is offered on behalf of the American Free Trade Association (AFT).
The American Free Trade Association is a not-for-profit trade association of inde-
pendent American importers, distributors and wholesalers, dedicated to preservation
of the parallel market as a source of genuine and legitimate brand-name goods at
reasonable cost to American consumers. The parallel market embraces a broad
range of products, but AFTA’s members are primarily involved in sale and distribu-
tion of fragrance, cologne, health and beauty aid (e.g. shampoo, soap, etc.) products.
AFTA has been an active advocate of parallel market interests for over fifteen
years. It has appeared as amicus curiae in the two leading Supreme court cases af-
firming the legality of parallel market trade under the federal trademark, customs
and copyright acts (the 1986 Kmart case and the 1998 Quality King case) and in
numerous lower court decisions. The Association regularly addresses regulatory and
legislative challenges to the parallel market through meetings and petitions with
government offices.
Because AFTA, and others, believe the preservation of the parallel marketplace
is paramount to the goals and objectives of the WTO, it submits this written testi-
mony in response to the Gommittee’s request for comments on the specific objectives
of the upcoming WTO Ministerial. The parallel marketplace is an industry serving
the interests of the international consumer and trader. Accordingly, we urge that
the Administration give a priority to assuring that the Ministerial Meetings do not
advance any principles which would curtail or diminish the legality of parallel mar-
ket trade throughout the world.
The Importance of the Parallel Marketplace
Parallel Imports are genuine trademarked consumer products, such as fragrances,
36 mm cameras, electronic products and watches which are manufactured abroad
and imported by independent American importers rather than by “authorized” U.S.
importers and distributors. Parallel imports exist primarily because the manufactur-
ers, for reasons of their own, seek significantly higher prices for their products in
the United States than elsewhere in the world. They do this by creating wholly-
owned or controlled subsidiaries in this country, designating those companies as the
exclusive “authorized” importers and distributors for their products here, and refus-
ing to sell to retailers who will not maintain the higher prices for the products.
The obvious result in a free enterprise, free trade market is that independent
American importers can purchase the same products overseas at the world price,
often directly from the manufacturers’ “authorized” distributors abroad. The foreign
manufacturers’ price differential for the U.S. market is often so great that, even
after paying shipping costs and U.S. Gustoms duties, the parallel importer can offer
the identical articles for twenty to forty percent less than the U.S. “authorized” dis-
tributor.
196
The result is a saving to American consumers amounting to billions of dollars a
year. Another result is the availability of popular products to a much wider spec-
trum of Americans who do not live in the large cities where the exclusive authorized
stores are generally located. The parallel import trade has also served as an inde-
pendent bulwark against unrestrained increases on the domestic price of imported
consumer goods as compared to prices available worldwide.
The WTO Objective
On August 5, 1999 Lori Wallach of Global Trade Watch presented oral testimony
to the Committee detailing how governments are utilizing international trade agree-
ments to promote corporations’ needs over the needs and benefits of consumers and
citizens. As stated by Ms. Wallach, parallel importing is a practice opposed by some
manufacturers who seek to engage in significant price discrimination by geographic
area. This practice of price and distribution discrimination undermines the very in-
tention of the WTO which is to help trade flow as freely as possible and to achieve
further trade liberalization.
The Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS) is
administered by the WTO. The goal of TRIPS is the reduction of distortions and im-
pediments to international trade, promotion of effective and adequate protection of
intellectual property rights, and ensuring that measures and procedures to enforce
intellectual property rights do not themselves become barriers to legitimate trade.
All of these objections are hindered, if not prevented, by national legislation ban-
ning, preventing or discouraging parallel imports. As can be seen in the present
South African conflict, global recognition of the right of the parallel marketplace to
exist is of paramount importance to any ongoing consideration of global economic
and consumer rights. If citizens cannot be protected by international trade agree-
ments, they serve no purpose whatsoever. If sick people are prevented access to
cheaper pharmaceuticals in the guise of advancement of international trade and in-
tellectual property considerations, we, as a global community, are failing our obliga-
tions to our citizens. If the fear of competition from parallel imports is so great that
WTO dispute mechanisms are relied upon to protect manufacturers from this type
of free trade, then the very ideal by which the WTO was established is necessarily
threatened.
International Considerations
In South Africa, parallel importation of generic drugs is being opposed by the U.S.
government because drug manufacturers feel threatened by the competition of
cheaper imports. This is despite the fact that these drugs may assist tremendously
in curbing the rising rate of the spread of AIDS in that country. In New Zealand
and Israel, the U.S. has threatened trade sanctions for repealing their bans on par-
allel imports — even though the repeal was based on funded economic studies prov-
ing that consumers would benefit tremendously from the increased competition and
lower prices. In the United Kingdom, manufacturers are struggling to maintain
their historic ability to charge British consumers much higher prices than other con-
sumers in other countries pay for the identical goods and the Ministers are urging
the repeal of trademark laws heretofore interpreted to deny parallel imports. In
Japan, recent case law limits the prevention of parallel patented imports and recent
studies clearly show that the practice is fully supported, albeit silently, by the man-
ufacturers themselves. Summarily, the international community is struggling to reg-
ulate, or deregulate, parallel market trade.
In July 1998, in “Parallel Importing: A Victory for the Consumer” Garreth Mor-
gan, a respected New Zealand columnist, reviewed the arguments submitted by op-
ponents of New Zealand’s repeal of its prohibition against parallel imports. “The
staunchest objection is that an owner of copyright should have the right to control
distribution of the copyrighted product — that without it they cannot maximize the
return from their investment. Conferring sole rights of control over these functions
(distribution, service and warranty) would generate unnecessary market power and
with that monopolistic pricing and production practices would proliferate — along
with a reduction in consumer benefit. So long as copyright law ensures that the
owner of the brand is able to levy purchasers a royalty at one stage of the produc-
tion or distribution chain, then they can get a return for their intellectual product.
There is no case that they should control all steps in the chain from producer to
consumer. Next, it’s been suggested that ownership of the New Zealand-registered
trademark can prevent others from using it. Again, to the extent that trademark
law enables its owner to limit competition beyond that necessary to ensure the
owner has an opportunity to charge a royalty for use of that ownership, it should
be modified. Similarly the privilege that New Zealand-registered patents or reg-
197
istered designs confer should be limited to ensure that offshore owners aren’t pre-
vented from having their products distributed here — so long as they’re not passed
off as something they’re not. It is therefor totally unnecessary for the government
to provide them additional protection on distribution — and indeed to do so harms
purchasers. A presence in manufacture and distribution is fine, but using one activ-
ity to dominate the market in the other, similarly compromises consumer sov-
ereignty.
The opinion of the Arbeitsgemeinschaft de Verbraucherverbande, the federal orga-
nization of the German consumer associations, echoes the sentiments that free trade
can only be accomplished through the international legalization of parallel importa-
tion. “From the consumer associations’ point of view it is completely unreasonable
that, in a context of increasingly global economic and trade relations, legal regula-
tions can be in force which make it possible to artificially keep prices high and for
manufacturers to block or considerably control distribution pathways for their prod-
ucts which were legally brought on the market. For consumers, this casts doubt on
the advantages of free world trade. Consumer organizations all over the world al-
ready justifiably fear that continuing liberalization in world trade could also result
in reduction of hard-gained national consumer protection standards.”
And, Japan, which recently held that parallel imports of patented products was
permissible (BBS Kraftverzueg Technik AG v. K.K. Racimex & K.K. Jap-Auto
Proucts, Supreme Court of Japan 1988), has consistently held that parallel import-
ing is generally considered to promote price competition in a market. Accordingly,
restrictions on parallel importing are viewed with scrutiny under the Antimonopoly
Law of Japan (the “Antimonopoly Law”). The guidelines to the Antimonopoly Law
concerning Distribution Systems and Business Practices in Japan specifically ad-
dress forms of restrictive conduct with respect to parallel importing which are
deemed to the violations of the Antimonopoly Law.
Throughout the World, government and courts permit and advocate parallel im-
portation and the secondary marketplace. It is imperative that the global commu-
nity not protect manufacturers at the cost of its citizens. Intellectual property laws
must not be utilized to prevent free trade practices and parallel importation must
be evaluated as a means to protect against monopolistic trade practices.
The Domestic Situation
In the United States, the parallel marketplace has long been sanctioned by fed-
eral law. It is based in United States Customs and trademark laws and regulation
(The Tariff Act, 199 U.S.C. 1526; The Lanham Act (15 USC 1051, et.seq.)). It has
repeatedly been upheld as a legitimate industry by the United States Courts, includ-
ing decisions by the Supreme Court over a decade ago (Kmart v. Cartier;) and as
recently as February 1998 (Quality King V. LAnza International). The Congress has
not been asked to reconsider or revise the law in the United States, although legis-
lation which failed in the last Congress (H.R. 3891) but has been reintroduced in
this Congress (H.R. 2100) would effectively eliminate the benefits of parallel trade
in the United States. Neither bill invited Congressional evaluation of the benefits
of parallel market to United States trade and consumers, as the bills were caste as
intellectual property and health and safety measures, not as anti-parallel market
bills.
The Administration’s actions regarding the parallel market create a great fear
that it might very well take a position at the Ministerial meetings contrary to
United States law and contrary to the interests of United States consumers and
trade community. As reported in the New York Law Journal May 11, 1998 article
“U.S. Government in Tough Stand to Enforce Rights” by Catherine Curtiss, Edwin
C. Bullock and Thomas P. Newman, The United States government has made a
commitment to help United States trademark and copyright owners stop the impor-
tation of gray market goods, despite it legality and its benefit to the consumer. This
article describes the Quality King v. LAnza Reseorc/iSupremen Court decision and
notes the Supreme Court’s objection to the Government’s position that to allow par-
allel importation would be “inconsistent with a number of international trade agree-
ments concluded by the United States.” The Supreme Court, in its decision, declared
the government’s “international trade agreements” argument to be “irrelevant” to
interpretation of statutory language enacted many years before the earliest of those
agreements was made. Nevertheless, the Administration continues its efforts to
force other countries to prohibit parallel trade, if not through express agreement,
then via threats of economic trade sanctions.il IFor example, the United States’
Trade Representative, convened a special review of New Zealand’s repeal of their
prohibition of parallel imports, stating that the action would have “sever con-
sequences” extending “far beyond the New Zealand market.” However, New Zealand
198
only changed its laws concerning parallel imports after extensive government fund-
ed research into the possible consequences on consumers and manufacturers. Based
on these studies, the government determined that removing the ban would benefit
consumers through lower prices and wider availability of goods, which are currently
limited through exclusive franchise networks. In addition, even New Zealand’s Man-
ufacturer’s Federation said the “advantages would outweigh the drawbacks” as man-
ufacturers would be able to buy cheaper machinery and equipment. Nevertheless,
for fear of its impact on international manufacturer monopolies and claiming the
need to protect the integrity of intellectual property rights, the U.S. felt compelled
to chastise New Zealand for its actions and threaten to place the country on the
Special 301 Watchlist.
In 1997, the Special 301 watchlist, the USTR’ annual review of intellectual prop-
erty rights protection in more than 70 countries and identification of countries
which are being “watched” by the U.S. intellectual property objectives and evaluated
for possible sanctions should those objectives not be met, included the following
countries: Argentina, because, among other things, “there is no provision for protec-
tion from parallel imports; Venezuela because, among other things, there is a “lack
of protection against parallel imports; and Colombia because, among other things,
there is a “lack of protection against parallel imports.”
The secondary marketplace employs hundreds of thousands U.S. citizens and en-
gages small, tax-paying businesses throughout the country. The parallel market-
place thrives because of the global marketplace and its continued operation nec-
essarily depends upon equal treatment between trading partners. Parallel imports
are products manufactured in one country and imported into another. The imported
product, pursuant to the WTO, must not be discriminated against in favor of the
domestic product. Accordingly, the U.S. parallel marketplace, like the industry in
other countries, depends upon international adherence to the provisions set forth in
the WTO. If these provisions are adhered to the recognized, even the United States
government will have no choice but to advocate the parallel marketplace.
The TRIPS Agreement is silent on the issue of parallel market trade legality. At
the Ministerial meetings, the United States should make certain that the Agree-
ment remains neutral on this issue — and certainly should not promote negotiations
to render parallel market trade illegal. The Courts and the Congress have supported
parallel market trade in this country; the Administration should not be taking a
contrary position in the international arena.
Conclusion
In comments made to South Africa’s parliament, in October 1997, Mr. James Love
of the Consumer Project on Technology (CPT) (a non-profit organization, created by
Ralph Nader, located in the United States) stated the following: “Parallel imports
can be an important source of price competition for many goods, recent decisions by
the European Court of Justice and the Supreme Court of Japan clearly state that
parallel imports of patented and trademarked goods are not contrary to inter-
national law. National legislation regarding parallel imports varies from country to
country. In many nations, parallel imports are not only permitted, but national anti-
trust authorities actively take steps to prevent manufactures from discouraging or
impeding parallel imports. This is the case, for example, in the European Commu-
nity and In Japan. There is clearly no worldwide consensus about the exhaustion
of IP rights. The older IP agreements, such as the Paris Convention and the Berne
Convention, do not touch upon this issue at all. The most recent global IP agree-
ment, TRIPS, carefully circumvents this issue; TRIPS Article 6 states that, for the
purpose of dispute settlement, nothing in the agreement shall be used to address
the issue of the exhaustion of IP rights. Legislation and jurisprudence on this topic
is varied from country to country, with countries taking different and nuanced posi-
tions on exhaustion of rights patents, copyrights and trademarks.”
The Journal of International Economic Law, Volume 1, Issue 4, pp. 607-636, in-
cludes the First Report (final) to the Committee on International Trade Law of the
International Law Association on the subject of parallel importation by FM Abbott,
Professor of Law, Chicago-Kent College of Law. The Report approaches the exhaus-
tion/parallel imports question in broad economic terms, asking whether there may
be an economic and social welfare benefit to permitting IPR holders to black parallel
imports that outweighs the potential harm to liberal trade. The Report observes the
most objective which IPR holders seek to achieve by the allocation of geographic
markets can be attained through less trade restrictive means, namely through the
vertical allocation of distribution territories by contract and that developing and de-
veloped countries are better served by open markets and the operation of compara-
199
tive advantage. The Report recommends that the WTO adopt a rule precluding gov-
ernments from blocking parallel imports save in certain exceptional cases
We believe it is imperative that the global community not protect manufacturers
at the cost of its citizens. Intellectual property laws must not be utilized to prevent
free trade practices and businessmen throughout the World must believe they are
free to compete in the international marketplace, the health and safety of sick pa-
tients must not be compromised because manufacturers fear the importation of
cheaper drugs and consumers’ rights must not be sacrificed in order to allow manu-
facturers to discriminately distribute and price their products in order that they
may unilaterally gain unjustifiably rich rewards.
The American Free Trade Association believes that the international community
is best served by a global consensus on parallel trade, this must be made a priority
during the upon coming WTO Ministerial conference in Seattle. As economists re-
ports are studied, as other countries’ decisions are evaluated and when consumers’
interests are held higher than the corporation’s, AFTA is certain that even the
United States’ government will support what its court system has already held —
parallel importation is a legitimate, beneficial industry that must be supported, ad-
vocated and favored within the international marketplace.
Statement of the Ameriean Iron and Steel Institute (AISI)
AISI is pleased to submit testimony on U.S. objectives for the Seattle Ministerial
and a new round of WTO talks. The following statement is submitted on behalf of
AISTs U.S. member companies, who together account for approximately two-thirds
of the raw steel produced annually in the United States.
Need to Achieve Continued Progress in the WTO’s Built-in Agenda
As the Seattle Ministerial prepares for a new round of multilateral trade negotia-
tions, the main focus should be on achieving progress in the WTO’s “built-in agen-
da” of existing rules on agriculture, services and intellectual property. Such progress
can only be made if the United States resists efforts by other WTO members to re-
open a counterproductive debate over the WTO’s antidumping and anti-subsidy
rules.
Need to Maintain Effective WTO Antidumping and Anti-Subsidy Rules
It is the failure to counter injurious dumping and other unfair trade practices that
undermines public confidence in free trade and public support for further multilat-
eral trade liberalization. For more than 50 years, international trade rules (first the
GATT, now the WTO) have allowed the U.S. and other countries to counter inju-
rious dumping. The reason: there is clear recognition that, in the real world, there
can be no free trade unless it is rule-based and fair. As soon as the public believes
that existing trade rules are ineffective or are not being enforced, support for free
trade begins to erode — and support for more restrictive, less transparent solutions
inconsistent with international trade rules starts to grow. This is what has occurred
in the United States in recent years, and the only way to reverse this trend is to
ensure prompt and strict trade enforcement of more effective U.S. laws against un-
fair trade.
To quote from the July 1998 U.S. submission to the WTO Working Group on the
Interaction between Trade and Competition Policy, the antidumping remedy is:
“necessary to the maintenance of the multilateral trading system. With-
out this and other remedial safeguards, there could have been no agree-
ment on broader GATT and later WTO packages of market-opening agree-
ments, especially given the imperfections which remain in the multilateral
trading system. . . . [T]he antidumping rules represent an effort to main-
tain a “level playing field” between producers in different countries . . .
[and] are a critical factor in obtaining and sustaining necessary public sup-
port for the shared multilateral goal of trade liberalization.”
In recent years, AISI and its U.S. member companies have supported virtually
every major initiative to liberalize international trade, including:
• renewal of U.S. traditional trade negotiating authority (“fast track”);
• the North American Free Trade Agreement (“NAFTA”);
• the GATT Uruguay Round (UR) results;
• the process of Asia-Pacific Economic Cooperation (“APEC”); and
• negotiations to achieve a Free Trade Area of the Americas (“FTAA”).
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At the same time, the revitalized, world class U.S. steel industry has confronted,
and continues to face, long-standing, injurious and pervasive foreign unfair trade
practices. Accordingly, AISI’s U.S. members have used antidumping (AD) and coun-
tervailing duty (CVD) laws to counter:
• closed foreign markets;
• foreign private anticompetitive practices;
• foreign dumping; and
• foreign government trade-distorting subsidies.
This experience has made clear that effective rules against dumping and trade-
distorting subsidies are what makes trade liberalization possible.
Need to Prevent Any Reopening of the WTO’s Antidumping Agreement and
THE WTO’s Agreement on Subsidies and Countervailing Measures (SCM)
With much of Asia and Latin America in recession and Russia in collapse, the
steel industry in the United States and throughout North America experienced the
greatest surge of injurious dumped and subsidized imports in its history in 1998.
Unfortunately, America’s steel trade crisis continues in 1999 in the form of loss of
orders, sales and revenue; severe price depression; cutbacks in production and oper-
ating rates; lost jobs; sharp declines in profitability and liquidity; reduced invest-
ment; depressed stock prices; and five bankruptcies. Therefore, AISI’s U.S. members
have a particular interest in avoiding any efforts by foreign governments to use the
WTO process to try to weaken further international and U.S. disciplines against
trade-distorting practices. This is a goal strongly shared by AISI’s entire North
American membership.
The Committee on Ways and Means, in its 1997 markup of fast track bill legisla-
tion, approved by voice vote — without dissent — a provision instructing U.S. nego-
tiators to reject any agreement that would weaken existing disciplines against
dumping and subsidies. The Committee stated that USTR:
“shall — ... preserve the ability of the United States to enforce rigorously
its trade laws, including the antidumping and countervailing duty laws,
and avoid agreements which lessen the effectiveness of domestic and inter-
national disciplines on unfair trade, especially dumping and subsidies. . ..”
Unfortunately, a number of foreign governments have recently made clear that
they would like to reopen these rules as a top priority — in order to weaken them.
Therefore, the absolute top priority for the U.S. government should be to oppose any
foreign government efforts to reopen the WTO Antidumping and SCM Agreements.
Whatever WTO members do agree to add to the list of agreed post-1999 WTO nego-
tiations, reopening the WTO Antidumping and SCM Agreements should not be on
the list.
• First, there have been no major problems with WTO members’ implementation
of the new AD! CVD rules, so reopening these agreements is unnecessary. The only
unresolved AD issue is circumvention and, while AISI supports adding further clar-
ity to WTO rules and improving U.S. law in this area, this neither requires nor jus-
tifies reopening the WTO Antidumping Agreement. On the issue of subsidies, there
is a need for more notification by governments, but this does not require or justify
reopening the SCM Agreement. Likewise, the only SCM issue in need of near-term
attention is the pending expiration, unless extended by Ministerial decision, of the
“greenlight” (Arts. 8 and 9) and “dark amber” (Art. 6.1) provisions, and this issue,
too, neither requires nor justifies reopening the SCM Agreement.
• Second, there has been little testing to date of the new AD! CVD rules. Many de-
veloping countries have not even come into full compliance with the GATT Uruguay
Round’s trade law changes. The world trading system has not had sufficient time
to digest the UR’s changes to dumping and anti-subsidy rules. A period of stability
and certainty is in order. Continued change and uncertainty in the WTO’s fair trade
rules would actually impede world trade.
• Third, the new AD /CVD rules are weaker than the pre-GATT Uruguay Round
rules. In the antidumping area, as a result of the UR’s stricter standing require-
ments, changes in how margins are calculated, higher de minimis standards and
new “sunset” provision, U.S. cases will be (1) harder to bring, (2) more difficult to
win, (3) provide less relief for a shorter period of time and (4) cost more money for
injured American industries and workers. In the anti-subsidy area, while the new
SCM Agreement has a somewhat expanded “red” list of prohibited subsidies and a
new deep amber definition for “serious prejudice,” the U.S. in the UR lost the ability
to pursue private subsidies, and also had to accept three new loopholes in the form
of greenlights that make non-actionable subsidies for research and “pre-competitive
development,” regional development and environmental equipment.
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• Fourth, the new AD/CVD rules are not the problem in international trade. The
real problems continue to be the trade-distorting practices of foreign countries
(closed markets, cartel behavior, massive subsidies) that facilitate dumping and
make it so necessary for the United States to maintain and enhance effective AD/
CVD rules.
• Fifth, any reopening of the WTO Antidumping and SCM Agreements would only
lead to a further weakening of AD! CVD rules. This, in turn, would further perpet-
uate uneconomic excess capacity abroad and foreign trade-distorting practices. This
would not serve the U.S. national economic interest.
• Sixth, a highly divisive fight over reopening the Antidumping and SCM Agree-
ments would make it all but impossible to achieve progress in key areas and conclude
a new round of trade talks in a timely fashion. It could prevent progress on all of
the important issues that comprise the agreed built-in agenda for the next round.
In sum, the U.S. government should continue to resist by whatever means nec-
essary any foreign government efforts to reopen these agreements. As AISI’s Presi-
dent and CEO Andrew G. Sharkey, III said recently:
“In the {President’s new| Action Plan {for steel), in testimony {on August
6) before the House Ways and Means Committee and in many other set-
tings, the resolve of the Administration is unmistakably strong. We plan to
support our negotiators in every way possible, because our trading partners
have made no secret of their intent to use the Seattle Round to cripple our
defenses against unfair trade.”
Need to Implement the GATT Uruguay Round’s Existing Rules
AISI also supports U.S. efforts to ensure that the existing UR antidumping and
anti-subsidy rules are effectively implemented, e.g., through continued monitoring
by the WTO’s Committee on Antidumping. This, however, is very different from re-
negotiating those rules.
In addition, two Marrakesh Ministerial decisions have not yet been properly im-
plemented. The first calls for an examination of the Antidumping Agreement stand-
ard of review to determine broader application in WTO dispute settlement pro-
ceedings. The second makes it clear that the WTO standard of review in AD dis-
putes should apply equally to WTO panel reviews of CVD disputes. Both of these
Ministerial decisions should be addressed and resolved as part of the pending WTO
Dispute Settlement Understanding (DSU) review, and neither provides a reason to
reopen the substantive WTO Antidumping or SCM Agreements.
Need to Continue the Progress in WTO-Mandated Negotiations
With respect to the concluded UR agreements where there was an express agree-
ment to conduct further negotiations, AISI would hope that any negotiations in the
services area would include a major focus on distribution services. Such a focus is
warranted because distribution barriers are a main method used in other countries
to limit imports of steel and other manufactured products. This, of course, impairs
U.S. exports and diverts foreign exports of steel and steel-intensive products to the
United States.
Need to Reform the WTO’s Dispute Settlement Understanding
The DSU review is to be concluded by year-end 1998 and, thus, technically is not
part of the post-1999 negotiating agenda. AISI believes that U.S. support for con-
tinuing WTO dispute settlement rules should be conditioned on additional improve-
ments and reforms. Among key and necessary reforms would be:
• to permit enhanced participation by private counsel “in the development of U.S.
positions and in the preparation for consultations and dispute settlement pro-
ceedings” as called for in the FY 1998 appropriations bill funding USTR;
• to limit the WTO’s focus to legitimate dispute settlement functions, e.g., to pro-
hibit WTO panels from reevaluating factual findings made by national authorities
in CVD, as well as in AD, cases; and
• to increase the fairness, transparency and openness of WTO dispute resolution
decision making.
In addition, AlSI’s U.S. members support continued U.S. efforts to:
• defend sovereignty — the WTO must continue to provide flexibility to allow a
country to maintain practices that violate the WTO as long as that country is will-
ing to compensate injured trading partners or accept retaliation;
• maintain Section 301 — the U.S. should keep stressing that, in areas where
there are currently no WTO disciplines. Section 301 will continue to be available
and will continue to be used to reduce and eliminate foreign market barriers; and
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• establish a WTO oversight commission — one way to enhance the credibility of
the WTO and its new DSU rules would be to enact the WTO judicial oversight bill
sponsored in the last Congress by Representatives Benjamin Cardin (D-MD), Ralph
Regula (R-OH) and others in the House and Senate. This WTO-consistent proposal
would help ensure that, in future AD/CVD appeals, WTO panels do not exceed or
abuse their authority.
Need to Continue Progress on the Singapore Ministerial’s Work Program
With respect to next steps on issues raised in the context of established WTO
working groups, AISI believes that:
• the current discussions in the trade and competition policy working group
should conclude by year’s end; and
• any report from this working group to the WTO General Council should omit
any references to antidumping law, which is a totally extraneous issue.
While the U.S. Administration deserves much credit for resisting foreign govern-
ment efforts to weaken U.S. AD law by tr3dng to link antidumping to competition
policy, the potential for WTO mischief making in this area has not diminished. In-
deed, WTO Secretariat officials continue to engage in unfounded attacks on the
GATT Article VI antidumping remedy through so-called “objective” studies on com-
petition policy.
Once again, the international trade problem is anticompetitive practices, not anti-
dumping law. U.S. steel companies and employees continue to suffer serious damage
from foreign steel cartel behavior.
The WTO could provide useful insights into this problem if future work were to
focus solely on the serious market access issues related to anticompetitive practices.
Any future educational work in this area, however, would need to steer absolutely
clear of any discussion or review of AD law and rules. It would need to confine itself
to exploring the problem of private (and joint public-private) anticompetitive prac-
tices and other trade restraints. It would need to look seriously at the damaging
effects of closed markets and private anticompetitive practices abroad, including for-
eign governments’ support for, and toleration of, cartel behavior. To that end, AISI’s
U.S. members would also like to see an official U.S. government study on the prob-
lem of foreign anticompetitive practices.
Need to Enact WTO-Consistent U.S. Trade Law Reform
WTO-consistent provisions to improve the effectiveness of U.S. trade laws are
among the most important pieces of trade legislation that Congress could enact this
year. Since the conclusion of the GATT Uruguay Round, which itself resulted in a
net weakening of U.S. trade laws, America’s antidumping and countervailing duty
laws have been further weakened by court decisions and sophisticated efforts at
trade law evasion and circumvention. In addition, economic crises abroad have re-
sulted in unprecedented, injurious surges of dumped, subsidized and disruptive im-
ports, to which our existing trade laws have not provided adequate remedies.
The United States is heading toward a record $300 billion merchandise trade def-
icit in 1999. In some cases, U.S. trade laws make it more difficult to obtain relief
from injurious imports than the WTO requires. As a result, public faith in free trade
is eroding, and public support for new multilateral trade liberalization is being un-
dermined.
Therefore, as the United States prepares for a new round of multilateral trade
negotiations, we must ensure that WTO-consistent U.S. trade laws (1) enhance U.S.
leverage and credibility at the negotiating table and (2) reassure the American pub-
lic that multilateral trade rules and national trade laws will be effectively enforced.
The best way to achieve these goals is to enact WTO-consistent trade law strength-
ening proposals of the kind contained in The Fair Trade Law Enhancement Act
(H.R. 1505) and the Continued Dumping and Subsidy Offset Act (H.R. 842).
Need to Pursue Other Key WTO Goals in the National Interest
While ensuring that a new WTO round does not result in any weakening of AD/
CVD laws remains AISI’s top priority, we also support the following WTO-related
objectives:
• Need to Achieve Steel Tariff Elimination Globally. The GATT Uruguay Round
already provides for a 10-year phase-out of U.S. steel tariffs. All normal U.S. duties
on steel imports are scheduled to reach zero on January 1, 2004. Unfortunately, the
GATT UR led to only some countries going to zero tariffs on steel. Many steel-pro-
ducing and trading countries in Asia, Central Europe, Latin America and elsewhere
did not agree to go to zero tariffs in the UR. Therefore, it is imperative in any new
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WTO Round that governments work together to ensure that all steel producing and
trading nations go to zero on steel tariffs as soon as possible. Achieving zero tariffs
on steel by all major steel producing and trading nations is in the interest of both
steel producers and consumers globally, and is needed to level the playing field in
international steel trade.
• Need to Pursue Simpler, More Transparent Government Procurement Rules.
AISI’s U.S. members support enhanced foreign procurement opportunities for steel’s
U.S. customers. They therefore support continued U.S. government efforts to: (1)
simplify and improve the World Trade Organization (WTO) Government Procure-
ment Agreement (GPA); (2) update the GPA to take account of the growing role of
electronic commerce in the government procurement area; (3) encourage developing
countries and other non-signatories to sign the GPA; (4) encourage non-signatories
to assume equivalent commitments to promote transparency and open access to
“covered entities"; and (5) encourage greater transparency and compliance by GPA
signatories of the commitments they have already agreed to.
• Need to Prevent Any Weakening of Steel Buy American Rules. At the same time,
in any new negotiations in the government procurement area — whether under the
auspices of the WTO, the FTAA or the Transatlantic Economic Partnership — AISTs
U.S. members remain strongly opposed to any weakening of steel Buy America rules
or any expansion of “covered entities” affecting steel. In particular, insofar as Con-
gress only recently reaffirmed, once again, its strong support for leaving steel Buy
American rules totally intact in the reauthorized ISTEA bill, there should be no
weakening of Buy American preferences in the Highway Bill. The problem is, AISI’s
U.S. members remain highly skeptical of expanding market access coverage at this
time in areas affecting steel, because: (1) the U.S. has not achieved an 3 dhing close
to equitable results in terms of currently covered entities; and (2) many foreign gov-
ernments have not lived up to their existing WTO GPA obligations and commit-
ments. If Buy American provisions were weakened without reciprocal access to for-
eign markets, U.S. steel producers, workers, customers, the U.S. economy and U.S.
trade policy would be the loser. At a time of steel trade crisis in the United States,
it should not even need saying that, in any procurement-related negotiations in the
near future, steel Buy American rules should be left fully intact.
• Need to Ensure WTO Accessions for China and Russia on Commercially Viable
Terms. AISI’s entire North American membership agrees that China (the world’s
number one steel producing nation), Russia (the world’s number one steel exporting
nation) and other countries in the Commonwealth of Independent States (CIS)
should accede to the WTO — but only on commercially viable terms. They agree in
particular that: (1) WTO members should be allowed to continue to apply non-
market economy antidumping methodology until steel and other key sectors of the
Chinese and CIS economies are no longer under government regulation or control;
(2) China and the CIS countries should end subsidies now to the steel sector and
adhere as soon as possible to the WTO Subsidies Code; (3) China should eliminate
immediately all trading rights and other discriminatory barriers to steel imports;
and (4) there should be a special safeguard in the Chinese and CIS accession proto-
cols that enables other WTO members to address the possibility of import market
disruption from China and the CIS.
• Need to Be Cautious on the New Issue of Trade and the Environment. One “new”
WTO issue is trade and the environment. On this issue, unlike some other segments
of U.S. industry, AISI’s main concern is not that NAFTA-type environmental provi-
sions might find their way into additional trade agreements. Rather, AISTs concern
is that unilateral U.S. efforts to implement certain international environmental ac-
cords could end up causing substantial harm to the trade and competitiveness posi-
tion of U.S. manufacturers — without in any way solving the global environmental
problems at hand. The steel industry’s most immediate concern in this regard is
global climate change policy. Simply put, the goal of reducing the world’s “green-
house” gasses and global warming will not be achieved if the U.S. and other devel-
oped countries are forced to live under strict new environmental standards, while
other major steel industries in the world are exempted as “developing” countries.
Main Conclusions
At a time when the U.S. steel industry continues to confront a trade crisis of his-
toric proportions, AISI remains greatly concerned by ongoing foreign government ef-
forts to reopen the current WTO dumping and anti-subsidy rules. Such a reopening
would only further erode current remedies to unfair trade. If that were to occur, the
support of steel and many other key U.S. industries for the WTO could turn to oppo-
sition. Therefore, Congress should continue to oppose foreign government efforts to
reopen and weaken WTO antidumping and anti-subsidy rules.
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In response to this latest trade law weakening push by foreign governments,
AISI’s U.S. member companies support:
• more effective U.S. AD/CVD laws and enhanced Department of Commerce trade
law enforcement;
• an intensified commitment by the Administration that it will vigorously enforce
U.S. trade law rights when they are challenged by foreign governments in the WTO;
and
• continued, close congressional oversight of WTO matters to ensure that the
WTO Antidumping and SCM Agreements do not get reopened.
AISI, on behalf of its U.S. members, appreciates this opportunity to provide a
written statement to the Trade Subcommittee on U.S. objectives for the third WTO
Ministerial Conference in Seattle and for a new round of WTO trade negotiations.
Statement of Antonia Juhasz, Director, International Trade and Forests
Program, American Lands Alliance, and Dr. Faith Campbell, Director,
Invasive Species Program, American Lands Alliance
American Lands Alliance
“I think trade has divided us, and divided Americans outside this chamber, for
too long. Somehow we have to find a common ground on which business and work-
ers and environmentalists and farmers and government can stand together.” Presi-
dent William Clinton, State of the Union Address, January 19, 1999
We joined with millions of Americans on January 19, 1999 to hear President Clin-
ton speak these words. We admit that we listened with some scepticism, but we also
accepted the President at his word. As Directors of the International Trade and For-
ests and Invasive Species Programs at American Lands Alliance, an organization
that works with forest protection activists and organizations from across the coun-
try, we looked forward to a year of increased participation in our government’s trade
policy agenda.
So, it was with considerable disappointment that we returned to work and learned
in increasing detail of the Administration’s agenda for the third Ministerial meeting
of the World Trade Organization.
Rather than use this meeting as an opportunity to use trade policy to promote
greater protections for the world’s embattled forests, the Administration is spear-
heading efforts that will threaten forests, biodiversity and eco-systems.
Given the multiple threats and abuses placed on the world’s dwindling native for-
ests, now is not the time to advocate trade policies that threaten to increase these
pressures. Rather, it is time to assess the impact of past international trade agree-
ments on forests and other non-renewable resources in an attempt to protect these
resources in the future.
There are several elements of the agenda for the Ministerial meeting that could
have a deleterious impact on forests. However, there are just three key issues that
we would like to bring to the attention of the Subcommittee today: the Global Free
Logging Agreement, the threat of invasive species invasion from the Sanitary and
Ph 3 dosanitary Standards Agreement and the potential inclusion of investment provi-
sions similar to the Multilateral Agreement on Investment.
The “Global Free Logging Agreement”
On February 11, 1999, less than one month after the State of Union Address,
United States Trade Representative Charlene Barchefsky, stated that trade liberal-
ization of forest products is a priority of the Administration and part of an “early
harvest” agenda — negotiations that will occur prior to the Ministerial meeting so
that a final agreement can be reached in November. The so called “Advanced Tariff
Liberalization” (ATL) initiative would eliminate tariffs on all forest products by the
year 2000 for developed countries and 2003 for developing countries.
Tariff Elimination on Forest Products
According to the American Forest and Paper Association, tariff elimination could
generate three to four percent additional growth in consumption of forest products
worldwide.
1 “Forest Industry Leader Urges Worldwide Tariff Elimination,” American Forest and Paper
Association, April 28, 1999.
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This finding is troubling because increased consumption of forest products will
lead to an increase in production. Increased production means increased logging —
making the ATL a virtual “Global Free Logging Agreement.” Without the appro-
priate environmental protections to ensure that logging takes place in unthreatened
forests and will not cause environmental harm, increased logging will mean in-
creased destruction of the world’s forests, biodiversity and eco-systems.
Current logging practices have decimated the world’s forests. According to the
World Resources Institute (WRI), nearly one-half of the world’s original forest cover
is gone. Of the remaining original forests, most is severely degraded, while only 22
percent remains as large tracts of relatively undisturbed primary or “frontier” for-
ests. WRI and other organizations have named commercial logging as the greatest
threat to frontier forests. According to World Wildlife Fund mapping projects, in
North America, all but about five percent of the forests in the lower 48 states have
been logged at least once. Following logging, replanted areas typically lack the bio-
diversity and ecological functions present in the original forest. The World Con-
servation Monitoring Center considers this type of habitat loss to be the biggest cur-
rent threat to biodiversity. An increase in unsustainable logging practices by the
ATL would exacerbate this already tenuous situation.
In response to the concerns raised by environmental organizations and others, the
Office of the U.S. Trade Representative has argued that tariff elimination is a win-
win scenario for the environment and industry because the increased consumption
it generates will be met by more efficient production.^ Unfortunately, the Adminis-
tration has yet to cite evidence in support of this contention.
Written testimony by Earthjustice Legal Defense Fund and Defenders of Wildlife ^
demonstrates the hollowness of the Administrations argument. First, the most eco-
nomically efficient way to log a forest is to clear cut. Clear cutting also happens to
be the most environmentally harmful method. Second, the organizations cite a U.S.
Department of Commerce finding in a countervailing duty investigation of softwood
lumber imports from Canada that as costs of producing timber decrease (in this case
through decreasing stumpage rates), logging increases. The Administration can not
have it both ways.
The ATL would accelerate and expand a tariff schedule agreed to at the Uruguay
Round of the WTO. Given the status of the world’s forests, there simply is not
enough information available at this time to know exactly what the impact of accel-
erated tariff elimination of all forest products world-wide would mean to endangered
forests, biodiversity and fragile eco-systems. Therefore, until such information is
available, and — if necessary — the appropriate environmental protections put into
place, it is fool-hearty to rush forward with these negotiations.
Non-Tariff Barriers to Trade: A Threat to Domestic Environmental Protections
In addition to tariff elimination, it is possible that the WTO will consider non-
tariff barriers to trade in the forest products sector. At least one nation, Japan, has
proposed the inclusion of non-tariff barriers to trade such as export bans on raw logs
for discussion at the Ministerial meeting.'^
The agreement on forest products was transferred to the WTO from the Asian Pa-
cific Economic Cooperation (APEC). APEC is negotiating a similar agreement that
includes the voluntary elimination of laws that are considered to be “unjustified”
non-tariff barriers to trade.
We find the potential negotiation of the elimination of non-tariff barriers to trade
troubling because such negotiations amount to a virtual attack plan on the forest
protection laws that American Lands Alliance cares about the most.
A 1997 paper by the WTO’s Committee on Trade and the Environment® describes
in detail non-tariff barriers to trade on forest products that could be considered in-
consistent with WTO rules. These non-tariff barriers include export controls, includ-
ing export taxes; restrictions and bans on certain products such as unprocessed logs;
recycled content requirements on paper products; regulations specifying types of al-
lowable packaging materials; percent of packaging material acceptable in relation
to product size and weight; packaging reuse and recycling targets; recovery or re-
turn schemes and certification and labeling of forest products.
2 Letter to Paige Fischer and Jim Jontz from Don Phillips, Assistant U.S. Trade Representa-
tive for Asia and the Pacific, July 27, 1998.
^“Conditions of Competition in the U.S. Forest Products Trade.” Investigation 332-400,
United States International Trade Commission. Hearing testimony submitted by Earthjustice
Legal Defense Fund and Defenders of Wildlife, May 26, 1999.
■^“Preparations for the 1999 Ministerial Conference.” Communication from Japan. July, 1999.
5WT/CTEAV/67, 7 November 1997
206
We worry that negotiations of forest products at the WTO Ministerial and subse-
quent round will attempt to treat legitimate conservation measures as “unjustified”
non-tariff trade barriers. Numerous U.S. laws designed to protect forests, the envi-
ronment and domestic workers could be challenged and potentially eliminated if
they were no longer considered justified, and therefore illegal, barriers to trade.
Examples of U.S. laws that could potentially be challenged by the WTO as illegal
non-tariff barriers to trade include the 1990 Forest Resources Conservation and
Shortage Relief Act that permanently banned the export of unprocessed logs from
federal and most state lands. The law was created to protect domestic workers, mills
and forests.
President Clinton’s Executive Order 12995 which establishes specific recycled con-
tent requirements for paper and paper products used by the federal government is
a non-tariff barrier to trade that could be considered “unjustifiable” at the WTO.
The same is true of laws enacted by every state except Alabama, Delaware and Wy-
oming to purchase recycled products including 33 states with preferences for recy-
cled materials generally, twenty states with separate purchasing preferences for re-
cycled paper, and several addressing other recycled materials.
Arizona, New York and Tennessee have passed eco-labeling or certification laws
that limit the purchase of wood from tropical rainforests, only buying tropical tim-
ber that is harvested using ecologically sound management practices. Such certifi-
cation programs are gaining in popularity around the country and the world. When
used by governments, these programs could be considered non-tariff barriers to
trade subject to WTO disciplines.
The vital environmental and labor protections created through these laws would
be eliminated if these laws were challenged and removed as illegal non-tariff bar-
riers to trade.
The WTO has a perfect record when it comes to environmental protection laws:
every environmental protection law that has been challenged at the WTO has fallen.
Given this record, the Clinton Administration should be using the Ministerial
meeting of the WTO to assess the threats currently faced by legitimate conservation
laws at the WTO rather than discussing proposals that put such laws into even
greater jeopardy.
Administration Analysis of ATL
Under growing pressure from environmental organizations and citizens to assess
the environmental impacts of the proposed liberalization initiatives for forest prod-
ucts at the WTO, the Administration has initiated a limited analysis of the potential
“economic and environmental impacts” of the ATL. Unfortunately, this analysis falls
well short of what would be necessary to provide an adequate basis for policy deci-
sion-making. Specifically, the reference point for such an assessment must be the
National Environmental Policy Act’s (NEPA) mandated procedures and methodolo-
gies, as elaborated through regulations of the Council on Environmental Quality
(CEQ). Because the analysis proposed by USTR and CEQ does not follow nor even
come close to reflecting these guidelines, it does not provide for the appropriate
depth, public participation nor evaluation of alternatives necessary to serve as a sat-
isfactory source of information.
American Lands finds the study to be inadequate for the following reasons:
1. The time-frame is too short for adequate public input and for comple-
tion of a comprehensive assessment. While the Federal Register requests “spe-
cific information regarding, or empirical studies of, the economic and environmental
impacts of past trade liberalization in this sector,” the thirty day comment period
does not provide adequate time to compile this or other meaningful information. In
addition, thirty days does not provide adequate time to notify the broader “non-belt-
way” public of the request period such that they have to time to prepare a response.
Finally, the time-frame for completion of the study (USTR and CEQ stated that the
study would be completed in September®) is too short for a comprehensive analysis
of hoth economic and environmental impacts.
NEPA COMPARISON: the NEPA process specifies that no final decision will be
made until at least 90 days after publication of a notice of a draft Environmental
Impact Statement (EIS) and 30 days after publication of a final EIS.
2. The scope of the analysis is too limited. The proposed analysis includes
only tariff elimination and does not include non-tariff barriers to trade. As discussed
above, it is most likely that the WTO discussions will include non-tariff measures.
Non-tariff measures are a vital part of the answer to the study’s question of how
USTR and CEQ briefing for NGOs on the ATL, June 3, 1999.
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forest product trade liberalization efforts relate to “other U.S. government goals and
objectives in the forest policy arena.” As listed above, there are many U.S. govern-
ment policies intended to protect forests that could be considered non-tariff barriers
to trade. The analysis is incomplete without an investigation in to this area.
3. The proposed analysis does not include an exploration of alternatives,
including the “no action” alternative. The analysis does not even consider
the possibility of achieving the trade goal with an environmentally justifi-
ahle alternative. Without a thorough investigation of alternatives to the
ATL, the agreement appears to he a “fait accompli” and the analysis noth-
ing more than a gesture to the environmental community rather than a
meaningful process.
NEPA COMPARISON: the NEPA EIS must include a comparison of the poten-
tial environmental impacts of the proposed action to the impacts of alternatives (in-
cluding no-action alternative) including appropriate mitigation measures.
4. The analysis does not include a study of the state of the world’s forests
today nor the adequacy of current forest protection laws. A comprehensive
environmental assessment must take into account the environmental status of the
natural resource in question and the laws intended to protect that resource. The
proposed analysis, on the other hand, fails to ask the basic question “are the world’s
forests able to sustain an ATL in forest products given current national and inter-
national frameworks for forest conservation?”
NEPA COMPARISON: the NEPA EIS must include a description of the affected
environment and the environmental consequences — including direct and indirect ef-
fects, possible conflicts with other federal, state and local policies governing the af-
fected areas, impacts of alternatives and the impacts on depletable resources and
on conservation.
5. The concerns raised by other agencies and the public are not being in-
vestigated. While the Federal Register notice states that previous testimony sub-
mitted on this topic will be made a part of the record, it does not say that USTR
and CEQ will respond to these comments nor the comments being requested in the
current notice. There is also no explanation given as to how comments will be in-
cluded in the process nor how the recommendations of the public will be rejected
or accepted. Finally, nowhere does it say that an explanation will be provided as
to why certain recommendations were rejected or accepted.
NEPA COMPARISON: under NEPA guidelines, the government is required to
assess and respond to public comments. In addition, the EIS must cover areas of
controversy, including issues raised by agencies and by the public, and issues to be
resolved (including alternatives).
Each of the five points provided above would be addressed if the Administration
had agreed to cease negotiation of forest product liberalization efforts at the WTO
and begin an assessment consistent with NEPA disciplines. Unfortunately, the pro-
posed analysis follows none of these guidelines and therefore will be an inadequate
assessment on which to base policy decisions about the ATL or any other trade lib-
eralization initiatives in the forest products sector.
Public and Congressional Opposition
On July 19, 1999, in a letter to United States Trade Representative Charlene
Barshefsky, sixteen of the nations leading environmental organizations expressed
their opposition to the forest product liberalization plans at the WTO. Groups as di-
verse as the World Wildlife Fund, the Wilderness Society and Greenpeace wrote
that the ATL “would not correct, and could very well compound, worldwide forest
destruction.” They urged the Administration to “promptly suspend further pro-
motion of the current U.S. position” and “begin development of an alternative trade
policy that demonstrably enhances forest conservation and sustainable develop-
ment.”
On the topic of non-tariff barriers to trade, the groups “reject any forest products
negotiations that threaten to treat legitimate conservation measures as illegal ‘non-
tariff trade barriers.’” They urged the Administration to “make clear that it would
vigorously oppose any negotiations that could lead to restrictions on legitimate third
party certification and ecolabeling of forest products, or otherwise on the consumer’s
right-to-know about the environmental conditions under which wood products are
logged and produced.”
On July 28, 1999, 48 bi-partisan Members of Congress wrote President Clinton
demanding that he withdraw from negotiations of the Global Free Logging Agree-
ment, saying that it would increase unsustainable logging practices, threaten do-
mestic forest protection laws, and jeopardize the world’s remaining native forests.
208
The letter was spearheaded by George Miller (D-CA) and Merrill Cook (R-UT).
House Minority Leader Richard Gephardt (D-MO) also signed the letter.
The Representatives addressed the topic of non-tariff barriers by expressing their
concern that the “Administration is negotiating non-tariff barriers in other fora and
has not committed to rejecting such discussions at the WTO in the future.”
Unfortunately, the Administration ignored these concerns and announced on July
30, 1999, that the ATL remained on the agenda of the Administration for signing
at the Ministerial in November. Furthermore, the Administration did not reject the
negotiation of non-tariff barriers to trade at the Ministerial or in the subsequent
round.
Recommendation
American Lands asks Subcommittee members to recommend that the Administra-
tion support the removal of all discussions of forest product trade liberalization from
the Ministerial meeting and subsequent round of the WTO. Rather, the Administra-
tion should initiate a NEPA-style assessment of the impact of previous WTO trade
agreements, and the potential impact of proposed WTO trade agreements, on forest
protection and biodiversity.
The SPS Agreement: Opening The Door to Invasive Species
Scientists and conservationists are increasingly concerned that the World Trade
Organization Agreement on the Application of Sanitary and Phytosanitary Stand-
ards (SPS Agreement) will block the U.S. Department of Agriculture from imposing
sufficiently effective phytosanitary safeguards to minimize the risk that harmful ex-
otic or alien species will be introduced in the course of international trade. As now
written, the SPS Agreement requires the U.S. Department of Agriculture (USDA)
to justify its phytosanitary safeguards in risk assessments that demand far greater
quantities of information, and in far greater detail, than scientists can provide. In
the face of these demands, the USDA must either
• adopt “provisional” regulations and expend scarce resources trying to obtain the
missing information needed to make them final; or
• play “Russian roulette” by choosing to apply phytosanitary regulations only to
known pests — when the vast majority of potentially damaging organisms have not
been identified by science.
Furthermore, even when the USDA has sufficient information to designate par-
ticular species of insect, nematode, fungal pathogen, or plant as a “quarantine pest,”
the SPS Agreement still limits the types of measures that the USDA can enact to
try to prevent those organisms’ introduction. Because the SPS Agreement forces the
USDA to rely on resource-intensive and error-prone processes of inspection, detec-
tion, and evaluation, it virtually guarantees that additional pests will be introduced.
The result of the SPS Agreement’s misguided provisions is that American agri-
culture, horticulture, and natural environment — and the taxpayer — will be exposed
to greater damage than necessary resulting from the introduction of exotic pests and
weeds.
Summary of Losses Caused by Introduced Pests and Weeds
According to Dr. David Pimentel and colleagues at Cornell University, introduced
or exotic species cost the American economy more than $123 billion annually. Exotic
pests and weeds subject to the SPS Agreement make up at least $80 billion of that
total. Examples of exotic pests and weeds already wreaking havoc in the United
States include Formosan termite, fire ant, gypsy moth, Melaleuca, water hyacinth,
“Dutch” elm disease, pine shoot beetle, yellow starthistle, and giant reed. These and
other exotic species have completely transformed the forests of the east and are de-
stroying the ecological and economic value of grasslands and wetlands across the
continent.
Even greater losses could be caused by introduction of additional exotic species
not yet established in America. Just two of the recent pest risk analyses completed
by the USDA put potential losses at $94 billion. These analyses considered just a
few species known to pose great risk to forests and related industries; pests threat-
ening other resources would raise the cost considerably. Furthermore, ecologists as-
sure us that many species that could devastate our ecosystems are at present com-
pletely unknown to science or are “cryptic” — that is, since they are not considered
to be pests in their native environments, their pest potential here has been under-
estimated. We can predict that future losses could rise to several hundred billion
dollars — but we cannot predict which introduced species will contribute most to such
a nightmare.
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How Exotic Species Reach America
Exotic species reach America in the course of international trade. Most come in
as unintended “hitchhikers” or “stowaways” — organisms that found homes in the
commodity being traded, or in the packaging containing the commodity, in the bal-
last water, even in or on the structures of the ships and planes themselves. Insects,
fungal pathogens, weed seeds, brown tree snakes, even mammals have survived
long-distance transport inside the holds of ships or planes. Once on our shores, the
organism may escape into suitable habitats, become established, and start to repro-
duce and spread.
As America’s imports increase — according to the General Accounting Office, they
have expanded by more than 50 percent just since 1990, so do the opportunities for
hitchhiking organisms. Unfortunately, virtually all ship-based transport ranks as a
high risk of introducing exotic species because both ballast water and solid wood
packaging — the crates, pallets, etc., that contain many products, and the wood
blocks (“dunnage”) placed between containers to prevent their shifting — provide
suitable habitats for a myriad of species. If the United States is to protect itself
from being overrun with exotic species and the hundreds of billions of dollars in as-
sociated control costs and losses, it must impose stringent phytosanitary safeguards
aimed at ballast water, wood packaging, a wide variety of commodities, and other
“pathways” of introduction.
Summary of Faults in the SPS Agreement
A) The Right of a Country to Set its Own “Appropriate Level of Risk":
The SPS Agreement explicitly allows a country to set its own “appropriate level
of risk” or protection (Article 3.3). However, this right is circumscribed. First, the
country must be consistent — that is, apply comparable levels of protection in com-
parable situations (Article 5.5). To satisfy this requirement, countries must close
any existing loopholes in “comparable” measures — both other phytosanitary meas-
ures applied to imports and domestic measures intended to prevent the spread of
“comparable” organisms within the country (or the absence of such measures). This
step will be politically difficult, may interfere with interstate trade, and will demand
expenditure of significant resources at a time of stringent budgetary limits.
Second, the “appropriate level of protection” must be justified by risk assessments
pointing to a specific — not a generalized — threat. However, scientists’ knowledge
about the ten million or more species of insects, fungi, and disease pathogens living
in our trading partners’ habitats is far too limited to enable them to predict which
foreign species might cause devastating damage if introduced to a new ecosystem.
For example, neither the chestnut blight nor the fungus which causes “Dutch” elm
disease is considered to be a damaging pest in their native Asia. The more specific
the information demanded by the SPS Agreement, the greater the number of poorly
understood exotic organisms that will not qualify for exclusion — and the risk that
some of those species will prove to be highly damaging pests once introduced.
B) Risk Assessments
The WTO Appellate Body has required that the risk assessment for phytosanitary
measures be very specific. The types of species and impact-specific information de-
manded just cannot be obtained for most potential phytosanitary pests. George Car-
roll, President of the Mycological Society of America, has said:
Current regulations are based in part on pest risk assessments ... However,
most of the fungi that have caused devastating epidemics upon introduction
to North America were previously unknown as significant pathogens and
indeed were not significant pathogens in their native habitat. Today, it is
estimated that 95% of fungal species in the world remain undescribed, let
alone understood in terms of ecolo^cal function. We do not believe that pest
risk assessments can adequately identify organisms which may cause se-
vere damage in North America.
America’s ecosystems will not be protected by phytosanitary measures targeted on
the few individual species for which sufficient data exist to meet this standard. Yet,
the SPS Agreement prohibits the USDA from acting to prevent the introduction of
species that are not determined, in the risk assessment, to be “quarantine pests”
under SPS standards — again, a decision dependent upon the error-prone process of
evaluating the potential impacts of individual taxa.
C) “Provisional” Measures Adopted Under the Terms of Article 5. 7
The only way a country can escape the obligation to define the problem and its
solution with such specificity is through adoption of “provisional” measures under
210
the terms of Article 5.7. A country’s right to adopt “provisional” measures is often
said to be the Agreement’s acceptance of the “precautionary principle.” However, the
text and a third decision by the Appellate Body make it clear that “provisional”
measures are expected to be short-term and the exception rather than the rule. Fur-
thermore, the country must be seeking the additional information — a task that will
certainly consume scarce governmental resources and may be completely fruitless.
As we said initially, the USDA has two choices:
1) play Russian roulette — let in the thousands of taxa for which it lacks sufficient
information to prepare an acceptable risk assessment — and hope that none of them
turns out to be the bullet in the chamber, or
2) issue numerous “provisional” regulations and waste scarce resources seeking
additional information and reviewing its decisions.
D) Pests and Weeds Already Present in the Country
The SPS Agreement severely restricts the U.S.’ right to protect itself from contin-
ued introduction of pests and weeds that are already present in the country. The
SPS Agreement allows a country to erect phytosanitary barriers for pests already
in the country only when:
• the species is not widespread and an “official control program” targets the spe-
cies; or
• the newly introduced organism differs genetically from its relative in the United
States in a way that demonstrates the potential to cause greater damage.
At least 400 species of exotic insects and 500 species of alien plants already
threaten natural ecosystems in the United States; additional pests and weeds
threaten agriculture. Allowing more individual organisms belonging to these species
into the country presents the following risks: the added numbers enable the species
to reproduce more rapidly; the new imports may establish a population in an area
not previously infested: and the organisms may introduce a genetic variety that is
harder to control.
Yet the U.S. lacks the resources to maintain “official control programs” for a sig-
nificant number of these established pests and weeds — especially when the principal
reason for doing so is not to improve control over the invader within our borders,
but only to meet the conditions for preventing further introductions.
Scientists cannot meet the second condition — analyzing the genetic makeup of
these organisms and predicting that any differences may result in the species show-
ing greater virulence or resistance to control — because they do not have sufficient
information about the species’ genetic makeup.
The Type of Phytosanitary Program the SPS Agreement Should Allow
A truly “science-based” phytosanitary program should reflect the serious threat
posed by exotic species to agriculture, horticulture, forestry and to the m 3 Tiad nat-
ural ecosystems and biotic communities found from Alaska to Florida, Maine to Ha-
waii.
It should also reflect practical realities, including gaps in scientists’ knowledge
about both species that inhabit our trading partners’ habitats and the vulnerability
of American ecosystems; and limits on funding, control technologies, etc. that im-
pede efforts to control introduced organisms once they are in the country. Indeed,
biological invasions are usually irreversible given today’s level of scientific knowl-
edge, limited funding, and the ever-rising number of pests that must be addressed.
For this reason, scientists strongly recommend focusing efforts on preventing intro-
ductions.
It follows that a sound ph 3 dosanitary program should have as its premise the goal
of keeping out — “excluding” — all exotic organisms that have not been evaluated and
determined very unlikely to be invasive.
In other words, “If in doubt, keep it out”; or “guilty until proven innocent”
Exclusion is most effectively and efficiently done by utilizing the best technologies
and reflations to ensure that each of the many introduction “pathways” will be as
inhospitable to any insect, fungus, virus, weed, or other potential pest organism as
is technically possible. This approach solves several problems; it:
• reduces the burden on USDA port inspectors who otherwise must search mil-
lions of shipments for tiny, even microscopic, organisms; and
• reduces the risk that an error in identifying and assessing the potential impacts
of an organism that is detected by inspectors will result in a decision to allow entry
of a species that turns out to be highly damaging.
Unfortunately, the SPS Agreement does not allow this sensible, science-based ap-
proach.
211
Recommendation
American Lands asks Subcommittee members to recommend that the Administra-
tion seek amendment of the SPS Agreement so that the United States and other
countries can institute effective phytosanitary safeguards to prevent irreversible
damage to our environment and losses in the hundreds of millions of dollars.
The Multilateral Agreement on Investment at The WTO
We appreciate that the Administration’s proposed agenda for the Ministerial does
not include negotiation of investment provisions such as those found in the Multilat-
eral Agreement on Investment (MAI). However, because at least one negotiating
body, the European Union, did include such discussions in their proposal, we ask
that the U.S. government explicitly state its opposition to such negotiations at the
Ministerial and the subsequent round.
The MAI is an international economic agreement that was originally negotiated
at the Organization for Economic Cooperation and Development (OECD). The MAI
would make it easier for individual and corporate investors to move assets — whether
money or production facilities — across international borders by limiting the ability
of governments to regulate their activities. While negotiations of the MAI were
scheduled for completion in May, 1998 at the OCED, overwhelming public and some
governmental opposition forced the OECD to cease these negotiations. Since this
time, WTO members such as the European Union, have suggested that MAI-like in-
vestment provisions be included in the WTO Ministerial round negotiations.
The inclusion of MAI-like investment provisions in the WTO would threaten forest
protection laws across the United States and the world.
The MAI: A Threat to Forests Everywhere
The MAI would increase access to foreign markets to multinational timber compa-
nies while at the same time limiting the ability of governments to regulate the ac-
tivities of those companies. In fact, governments would be forced to grant foreign-
owned companies special rights over domestic companies.
WTO rules currently apply primarily to the movement of goods and services. If
investment was included, WTO rules would be expanded to apply to the movement
capital and production facilities, such as factories, around the world.
These rules include:
National Treatment (NT). NT requires countries to treat foreign investors and
investments no less favorably than domestic ones. Under NT, governments can not
favor domestic, locally owned timber companies (even if these companies are proven
to operate the most sustainably) with tax breaks, special subsides or contract pref-
erences; nor can governments reserve publicly owned forests for local economic use:
foreign corporations must be given an equal right to bid for concessions.
Most Favored Nation (MFN). MEN requires governments to treat all foreign
countries and investors the same with respect to regulatory laws. Laws prohibited
by MFN would include laws that restrict trade with specific foreign-owned compa-
nies known for their unsound environmental production practices and laws that re-
strict trade with companies that do business in countries with especially threatened
forests.
The MAI included the following provisions which could also be introduced at the
WTO: _
Limitations on Performance Requirements (PR). PRs are laws that require
investors to meet certain conditions if they want to establish an enterprise in a par-
ticular location. Such laws were banned outright at the OECD, even if they did not
discriminate against foreign investors. Therefore, laws designed to ensure that local
communities benefit from the economic activity of foreign-owned timber companies
could be banned. For example, requirements to: take a local partner, hire local peo-
ple, make a specific level of investment — including local benefit or assistance pack-
ages, or requiring the transfer of environmentally beneficial technology.
A Ban on the Uncompensated Expropriation of Assets. The MAI required
governments, when they deprive foreign investors of any portion of their property,
to compensate the investors immediately and in full. Because this provision is de-
fined so broadly, it has the effect of essentially threatening the ability of govern-
ments to write any regulatory laws because these laws could be argued to reduce
the value of an investment. For example, it could he argued that a ban on clear-
cutting or other land use restrictions limits the ability of timber companies to get
the full value of their investment and therefore is an “expropriation of their assets.”
Under MAI rules, the company would have to be compensated for their “lost profits”
by the government.
212
Investor-to State Dispute Resolution (ISDR). Currently, the WTO does not
allow for ISDR. However, the member nations could agree to institute it at the
WTO. Under ISDR, individual investors and corporations are given the right to en-
force the MAI by suing national governments directly if they believe that their
rights, as established by the MAI, have been violated. The implications are enor-
mous. Rather than go through the “political filter” of governments suing govern-
ments — as is the standard for all international trade agreements other than the
North American Free Trade Agreement (NAFTA) — the only filter keeping corpora-
tions from suing governments is the size of the corporations legal budget. Using the
ISDR mechanism in NAFTA, a Canadian environmental and health law has been
struck down and a California environmental and health law is the subject of a $1
billion suit.
A Ban on Restrictions on the Repatriation of Profits or the Movement of
Capital. Under this provision, countries can not prevent an investor from moving
profits from the operation or sale of a local enterprise to that investor’s home coun-
try. Nor can countries delay or prohibit investors from moving any portion of their
assets, including financial instruments like stocks or currency. Many experts blame
the recent East Asian financial crisis on just this type of capital flow liberalization.
Investment provisions at the WTO modeled after those in the MAI would force
governments to abandon laws that protect forests and the environment in order to
grant increased rights to foreign corporations.
Recommendation
American Lands asks Subcommittee members to recommend that the Administra-
tion explicitly oppose the negotiation of MAI-like investment provisions at the WTO
Ministerial meeting or the subsequent round.
Conclusion
Free trade in forest products is not like free trade in other areas. Unlike radishes,
when you pick a 4000 year old Chilean Alerce tree out the ground, it is gone for
ever, it will not grow back. Unlike aluminum cans, when you crush millions of life-
forms as yet to be identified while clear-cutting a forest, they can not be recycled.
Therefore, it is fool-hearty to proceed with agreements to increase trade in non-re-
newable resources without in-depth analysis of the environmental consequences.
American Lands would like to make four specific requests to the members of the Sub-
committee for their recommendations to the Administration:
1) The Administration should oppose all discussions of forest products trade liber-
alization at the Ministerial meeting and subsequent round of the WTO. Rather, the
Administration should initiate an assessment of the impact of previous WTO trade
agreement, and the potential impact of proposed WTO trade agreements, on forest
protection and biodiversity. This assessment should be conducted with the reference
point being NEPA’s mandated procedures and methodologies, as elaborated through
regulations of CEQ.
2) The Administration should seek amendment of the SPS Agreement as defined
in detail above such that the United States and other countries can institute effec-
tive phytosanitary safeguards to prevent irreversible damage to our environment
and losses in the hundreds of millions of dollars.
3) The Administration should explicitly state its opposition to negotiations of MAI-
like investment provisions at the Ministerial and subsequent round of negotiations
of the WTO.
4) The Administration should heed the demand reflected in a letter which this or-
ganization helped draft and which has been signed by over 700 organizations world-
wide demanding that the Ministerial meeting in November be an assessment round.
The current Agreements of the GATT and WTO would be assessed for their impacts
on the environment and other social and economic areas at such a round. This as-
sessment must be conducted with the direct input of qualified experts from non-gov-
ernmental organizations and institutions and in an open and transparent manner
Thank you for the opportunity to address this Subcommittee in written testimony.
213
Statement of James Wm. Johnson, Jr., President, United States Beet Sugar
Assoeiation, and Chairman, American Sugar Alliance
Introduction
Thank you for the opportunity to submit testimony in conjunction with this impor-
tant hearing. 1 am the president of the United States Beet Sugar Association, which
represents American sugarbeet processing companies. 1 am also honored to serve as
chairman of the American Sugar Alliance (ASA). The ASA is the national coalition
of growers, processors, and refiners of sugarbeets, sugarcane, and corn for sweet-
ener.
The ASA has long endorsed the goal of global free trade because U.S. sugar and
corn sweetener producers are efficient by world standards and would welcome the
opportunity to compete on a genuine level playing field. Until that free trade goal
is achieved, however, the United States must retain at least the minimal sugar pol-
icy now in place to prevent foreign subsidized, dump market sugar from unfairly
displacing efficient American producers. This policy was substantially modified by
Congress in the 1996 Farm Bill, but remains highly beneficial to American teix-
payers and consumers.
While the ASA supports the goal of free trade, we have serious concerns about
past agreements and about the structure of future multilateral or regional trade
agreements. Listed below are our specific recommendations regarding negotiations
of the World Trade Organization, followed by some background on the United
States’ role and standing in the world sugar economy and our evaluation of the ef-
fects of past multilateral and regional trade agreements on the world sugar market
and on our industry.
U.S. agriculture is extremely vulnerable as we approach the next trade round. If
we are reckless, we risk converting American agriculture into a Rust Belt. If we ne-
gotiate carefully and rationally, however, there is enormous potential for responsible
American producers to compete and prosper in a genuine free trade environment,
free from the need for government intervention.
Recommendations for Future WTO Negotiations
The 1999 World Trade Organization (WTO) Ministerial will play a pivotal role in
establishing the scope, parameters, and goal of the next multilateral trade round.
Shaped by our experience and by the specific failures of past agreements, described
later in this paper, the following are the ASA’s recommendations for the Ministerial.
Compliance.
Compliance with past agreements, in particular, the Uruguay Round Agreement
(URA) of the WTO and the North American Free Trade Agreement (NAFTA), must
be achieved before the United States forges any new agreements. The United States,
and any other country that has surpassed its URA commitments, should be given
credit for doing so before being required to make further cuts in the next trade
round.
2. Catch-up.
The United States must not reduce its support for agricultural programs, particu-
larly for import-sensitive crops such as sugar, any further until other countries have
reduced their support to our level.
3. Export subsidies ! STE’s.
Elimination of export subsidies, the most trade distorting of all practices, and of
state trading enterprises (STE’s), which were ignored previously, must be given top
priority in the next trade round.
4. Labor and environmental standards.
The wide gap in labor and environmental standards between developed and devel-
oping countries must be taken into account in the next trade round, to provide both
incentives and penalties that ensure global standards rise to developed-country lev-
els, rather than fall to developing-country levels. Nearly three-quarters of the
world’s sugar is produced in developing countries.
214
5. Negotiating strategy.
With regard to future tariff reductions, the traditional, flexible, “request/offer”
type of negotiating strategy must be followed in the next trade round, rather than
the rigid, across-the-board, formula approach that was used in the URA. This is the
only way to recognize the enormous diversity, and varying sensitivities, among agri-
cultural industries and commodity markets.
Background on U.S. Sugar Industry, Policy
Size and Competitiveness.
Sugar is grown and processed in 17 states and 420,000 American jobs, in 40
states, are dependent, directly or indirectly, on the production of sugar and corn
sweeteners. The industry generates an estimated $26.2 billion in economic activity
annually. A little more than half our sugar is produced from sugarbeets, the remain-
der from sugarcane. More than half our caloric sweetener consumption is in the
form of corn sweeteners.
The United States is the world’s fourth largest sugar producer, trailing only
Brazil, India, and China. The European Union (EU), taken collectively, is by far the
world’s largest producing region. It benefits from massive production and export
subsidy programs.
Sugar is an essential food ingredient and the U.S. sugar producing industry is
highly efficient, highly capitalized, and technologically advanced. It provides 260
million Americans most of sugar they demand, in 45 different product specifications
and with “just-in-time” delivery that saves grocers and manufacturers storage costs.
Roughly 15-20% of U.S. sugar demand is fulfilled by duty-free imports from for-
eign countries, making the U.S. one of the world’s largest sugar importers. Many
of the 41 countries suppl 3 dng our sugar are developing economies with fragile de-
mocracies and they depend heavily on sales to the United States, at prevailing U.S.
prices, to cover their costs of production and generate foreign exchange revenues.
Despite some of the world’s highest government-imposed costs for labor and envi-
ronmental protections, U.S. sugar producers are among the world’s most efficient.
According to a study released in 1997 by LMC International, of England, and cov-
ering the 6-year period ending in 1994/95, American sugar producers rank 19th low-
est in cost among 96 producing countries, most of which are developing countries.
According to LMC, fully two-thirds of the world’s sugar is produced at a higher cost
per pound than in the United States.
During the last three years studied, 1992/93-94/95, the United States became the
lowest cost beet sugar producer in the world. American corn sweetener producers
are also the lowest cost of all caloric sweeteners in the world, and always have been
the lowest cost producer of corn sweetener.
Because of their efficiency, American sugar farmers would welcome the oppor-
tunity to compete against foreign farmers on a level playing field, free of govern-
ment subsidies and market intervention. Unfortunately, the extreme distortion of
the world sugar market makes any such free trade competition impossible today.
Unique Characteristics of the World Sugar Market
There are a number of unique characteristics to the world sugar market, which
trade negotiators must take into account in future multilateral deliberations.
World Dump Market.
More than 100 countries produce sugar and the governments of all these countries
intervene in their sugar markets and industries in some way. These unfair trading
practices have led to the distortion in the so-called “world market” for sugar, and
to a disconnect between the cost of production and prices on the world sugar mar-
ket, more aptly called a “dump market.” Indeed, for the period of 1984/85 through
1994/95, the most recent period for which cost of production data are available, the
world average cost of producing sugar is over 18 cents, while the world dump mar-
ket price averaged barely half that — just a little more than 9 cents per pound raw
value.
Volatility.
Furthermore, its dump nature makes sugar the world’s most volatile commodity
market. Because it is a relatively thinly traded market, small shifts in supply or
demand can cause huge changes in price.
During the period 1965-95, the average deviation from trend for raw sugar prices
was nearly 50 percent, more than double the average deviation for corn and almost
215
double that of wheat. Just in the past two decades, world sugar prices have soared
above 60 cents per pound and plummeted below 3 cents per pound.
Other Factors.
Aside from the highly residual and volatile nature of the world sugar price, there
are a number of factors that set sugar apart from other program commodities. These
unique characteristics should be taken into account before sugar is lumped in with
other commodities for across-the-board policy reforms.
• Lack of Concentration. World grain exports are overwhelmingly dominated by
a small number of developed countries, but sugar exports are far more dispersed,
and dominated by developing countries. This makes the playing field among major
grain exporters comparatively level and policy reform relatively less complicated
than for sugar.
The world wheat and corn markets, for example, are heavily dominated by a
handful of developed-country exporters — the United States, the European Union,
Australia, and Canada are four of the top five exporters of each. The top five ac-
count for 96% of global corn exports and 91% of wheat exports.
The top five sugar exporting countries, on the other hand, account for only two-
thirds of global exports and three of these are developing countries. The top 19
sugar exporters account for only 85% of the market, and 16 of these are developing
countries.
• Developing Country Dominance. Developing countries account for 73% of world
sugar production, and 69% of hoth exports and imports. Developing countries were
virtually ignored in the Uruguay Round of reductions in harriers to agricultural
trade, and impose far lower costs on their producers for labor and environmental
protections.
• Grower ! Processor Interdependence. Grain, oilseed, and most other field-crop
farmers harvest a product that can be sold for commercial use or stored without any
further processing. Sugarbeet and sugarcane farmers harvest a product that is high-
ly perishable and of no commercial value until the sugar has been extracted. Farm-
ers cannot, therefore, grow beets or cane unless they either own, or have contracted
with, a processing plant. Likewise, processors cannot function economically unless
they have an optimal supply of beets or cane. This interdependence leaves the sugar
industry far less flexible in responding to changes in the price of sugar or of com-
peting crops.
• Multi-Year Investment. The multimillion-dollar cost of constructing a beet or
cane processing plant (approximately $300 million), the need for planting, culti-
vating, and harvesting machinery that is unique to sugar, and the practice of ex-
tracting several harvests from one planting of sugarcane, make beet or cane plant-
ing an expensive, multiyear investment. These huge, long-term investments further
reduce the sugar industry’s ability to make short-term adjustments to sudden eco-
nomic changes.
• High-Value Product.
While the gross returns per acre of beets or cane tend to be significantly higher
than for other crops, critics often ignore the high cost associated with growing these
crops. Compared with growing wheat, for example, USDA statistics reveal the total
economic cost of growing cane is nearly seven times higher, and beet is more than
five times higher. With the additional cost for processing the beets and cane, sugar
is really more of a high-value product than a field crop.
• Inability to Hedge. The 1996 Freedom to Farm Bill made American farmers far
more dependent on the marketplace. Growers of grains, oilseeds, cotton, and rice
can reduce their vulnerability to market swings by hedging or forward contracting
on a variety of futures markets for their commodities. There is no futures market
for beets or cane. Farmers do not market their crop and can neither make, nor take,
delivery of beet or cane sugar. The hedging or forward contracting opportunities
exist only for the processors — the sellers of the sugar derived from the beets and
cane. These marketing limitations make beet and cane farmers more vulnerable
than other farmers to market swings.
U.S. Sugar Industry’s Free Trade Goal
Because of our competitiveness, with costs of production well below the world av-
erage, the American Sugar Alliance supports the goal of genuine, global free trade
in sugar. We cannot compete with foreign governments, but we are perfectly willing
to compete with foreign farmers in a truly free trade environment.
We were the first U.S. commodity group to endorse the goal of completely elimi-
nating government barriers to trade at the outset of the Uruguay Round, in 1986.
216
We understand we are the first group to endorse this same goal prior to the start
of the 1999 multilateral trade round.
The ASA does not endorse the notion of free trade at any cost. The movement to-
ward free trade must be made deliberately and rationally, to ensure fairness and
to ensure that those of us who have a gloljal comparative advantage in sugar pro-
duction are not disadvantaged by allowing distortions, exemptions, or delays for our
foreign competitors, as we are experiencing under the current agreement.
Sugar and the Uruguay Round Agreement
Little Effect on World Sugar Policies.
More than 100 countries produce sugar and all have some form of government
intervention. Unfortunately, these policies were not significantly changed in the
Uruguay Round Agreement (URA) of the WTO.
The URA inadequately addressed, or ignored:
• Compliance. Many countries have evaded or not yet even complied with their
URA agricultural commitments. In sugar, for example, the EU has managed to iso-
late most of its sugar export subsidy program from URA disciplines. The Philippines
has yet to meet its requirements for increasing minimum access levels to its sugar
market.
It was revealed at a WTO Analysis and Information Exchange Group meeting
Geneva in September 1998, nearly four years since the inception of the URA, that
a mere 17 of the 132 member nations have fulfilled all their notification require-
ments on domestic support, export subsidies, and market access. One must wonder
how we can monitor compliance with WTO-mandated reductions in agricultural poli-
cies when the vast majority of countries will not even acknowledge which policies
they have in place.
• Export Subsidies. The most distorting practice in world agricultural trade is
the export subsidy. Export subsidies provide countries the mechanism to dispose of
surpluses generated by high internal production subsidies. In the absence of export
subsidies as a surplus-removal vehicle, countries would have to reduce their produc-
tion supports. With export subsidies in place, countries can move surpluses into
markets where they do not belong and depress market prices. Other countries are
forced to respond with import barriers. In the world sugar market, subsidized ex-
ports by the EU alone amount to about a fifth of all the sugar traded each year.
The URA did not significantly reduce the amount of sugar sold globally with
export subsidies. The agreement failed to reduce the European Union’s generous
price support level and requires only a tiny potential drop in its substantial export
subsidies.
• State Trading Enterprises (STE’s). STE’s are quasi-governmental, or govern-
ment-tolerated organizations that support domestic producers through a variety of
monopolistic buyer or seller arrangements, marketing quotas, dual-pricing arrange-
ments, and other strategies. These practices were ignored in the Uruguay Round,
but are, unfortunately, common in the world sugar industry. Major producers such
as Australia, Brazil, China, Cuba, and India have sugar STE’s, but were not re-
quired to make any changes in the URA.
• Developing-Country Producers. Developing countries, which represent nearly
three-quarters of world sugar production and trade, have little or no labor and envi-
ronmental standards for sugar farmers, have no minimum import access require-
ments, and often have high import tariffs. Nonetheless, developing countries were
put on a much slower track for reductions, or, in the case of the least developed
countries, were exempted altogether from URA disciplines.
• WTO Non-Members. Important sugar-producing and importing countries such
as China and the former Soviet republics are not WTO members, and need to do
nothing under the URA. Yet, these countries represent some 40% of global sugar
imports and 20% of production.
• Labor and Environmental Standards. The gap in government standards — and
resulting producer costs — between developed and developing countries is well docu-
mented and immense, but was ignored in the URA. In sugar, the gap is particularly
pronounced because, while the EU and the U.S. are major players, production and
exports are highly dominated by developing countries, especially in the cane sector.
Social Standards Gap.
The differences in labor and environmental standards between developed and de-
veloping countries are wide. American sugar producers operate with the highest pos-
sible regard for workers and the environment. But we should not be penalized in
multilateral trade negotiations for providing these costly protections. Foreign coun-
tries that do not provide such protections should not be rewarded. If we are at-
217
tempting to globalize our economy, we should also globalize our worker and environ-
mental protection responsibilities. If markets are to be liberalized, standards must
be harmonized.
In the next trade round, access to developed countries should be conditioned on
developing countries’ achievement and enforcement of higher labor and environ-
mental standards. Such an incentive system could help ensure that the next trade
round results in a race to the top, in protection of workers and the environment,
rather than a race to the bottom.
'Widely Varying Levels of Support.
Unilateral reforms to U.S. agriculture policy in the 1996 Farm Bill far exceeded
U.S. commitments made the year before in the Uruguay Round. Furthermore, devel-
oping countries, which dominate world agricultural trade and particularly sugar
trade, were subject to a slower pace of reductions, if any.
As a result, the United States is way out in front of the rest of the world in re-
moving its government from agriculture and has placed its farmers in a domestic
free market situation. This gap makes American farmers uniquely vulnerable to
continued subsidies by foreign competitors.
It is key that American farmers not be penalized for attempting to lead the rest
of the world toward free agricultural trade. American farmers must be given credit
for the reforms they have endured.
U.S. Sugar Surpasses URA Requirements.
The United States is one of only about 25 countries that guarantees a portion of
its sugar market to foreign producers and it has far surpassed its URA commitment
on import access. The URA required a minimum access of 3-5% of domestic con-
sumption. The United States accepted a sugar-import minimum that amounts to
about 12% of consumption. In practice, U.S. imports in 1994/95 and 1995/96 aver-
aged 24% — double the promise we made in the URA, and about six times the global
URA minimum.
All this sugar imported from 41 countries under the tariff-rate quota (TRQ) enters
the United States at the U.S. price, and not at the world dump price. Virtually all
this sugar enters duty free. Just five countries (Argentina, Australia, Brazil, Gabon,
and Taiwan) that lack Generalized System of Preferences status pay a minuscule
duty of 0.625 cents per pound.
The United States calculated its above-quota tariff rate in the manner dictated
by the URA. These tariff levels are totally WTO consistent, and are dropping by
15% over the 6-year transition period, as we promised they would in the Uruguay
Round. This duty is frozen in the year 2000 and must not be reduced further until
foreign countries have complied with their URA requirements, as the U.S. has done.
U.S. Sugar Policy Reforms.
U.S. sugar policy was unilaterally and substantially reformed in the 1996 Farm
Bill, far in excess of URA commitments. The key reforms: 1) Production controls
(“marketing allotments”) were eliminated. 2) Government-provided non-recourse
loans, or a government-guaranteed minimum price, are conditional and no longer
guaranteed — unlike all other U.S. program commodities. This ensures long-standing
Congressional intent that U.S. sugar policy be run at no cost to the U.S. Treasury.
3) The minimum import level, already about four times the minimum required by
the URA, was effectively raised another 20%. 4) Sugar producers’ burdensome and
discriminatory marketing assessment tax was raised 25%. 5) A 1-cent per pound
penalty was established to discourage government loan forfeitures. 6) The U.S. com-
mitted to further support price reductions when other countries surpass their URA
requirements, as the U.S. has done, and achieve levels equal to ours.
The reformed sugar policy of the 1996 Farm Bill does retain the Secretary of Agri-
culture’s ability to limit imports, and also provides a price support mechanism,
though only when imports exceed 1.5 million short tons. The 1998/99 sugar import
quota is already below that critical trigger level.
Playing Field Lower, But Not More Level.
The URA’s formula-based approach called for across-the-board percentage reduc-
tions, regardless of the original level of price support, import barrier, or export sub-
sidy. Countries with the most egregious barriers can maintain their advantage
throughout the transition process. For example, if one country’s price support were
40% higher than another’s, and both reduced by the URA-mandated 20%, the 40%
advantage would remain in place — the playing field has been lowered, but not lev-
eled.
218
Furthermore, the United States far surpassed its URA commitments, unilaterally
dismantling its already minimal commodity program in the 1996 Farm Bill, while
many other nations with higher levels of government intervention have yet to even
minimally comply. This has tilted the playing field even further to the disadvantage
of efficient American farmers.
Formula Driven Trade Strategy.
For the many reasons outlined above, the rigid, formula-driven, or one-size-fits-
all, approach for trade concessions does not work for agriculture in general, or for
sugar in particular. Pursuing this approach would: 1) Fail to reduce the gap in sup-
ports between countries — lowering the plajdng field, but not leveling it; 2) Again
give developing countries virtually a free ride; 3) Further diminish U.S. negotiating
leverage, which was severely reduced through our unilateral concessions in the 1996
Farm Bill.
To date, U.S. agriculture has led the world in trade barrier reductions and we are
disadvantaged as long as the rest of the world fails to follow our example.
Special Import Safeguards.
The URA did provide some special import safeguards for sugar in the event of a
world price collapse. Such a price collapse has occurred — current world prices are
at a 14-year low of less than 5 cents — and these price-triggered safeguards are prov-
ing valuable to prevent dump market sugar from entering the U.S. market. These
safeguards must be retained, and should be strengthened, in the next trade round.
Sugar and the NAFTA
The ASA is concerned that before the United States embarks on another multilat-
eral trade round we must be cognizant of serious problems that remain with our
primary regional trade agreement, the North American Free Trade Agreement
(NAFTA). Evasion of NAFTA rules and violation of international trade rules by our
North American trading partners have left many American sugar producers with a
distrust of trade agreements and a serious reticence about entering into new ones.
Canada.
Sugar trade between the United States and Canada, which imports about 90% of
its sugar needs, was essentially excluded from the NAFTA. U.S. -Canadian sugar
trade is governed mainly by the U.S. -Canada Free Trade Agreement and by the
WTO.
Currently, entrepreneurs based in Canada are threatening the integrity of U.S.
sugar policy by circumventing the tariff-rate quota with a new product referred to
in the trade as “stuffed molasses” — a high-sugar product not currently included in
U.S. sugar TRQ classifications. USDA has estimated imports of this product could
add about 100,000 tons of non-quota sugar to the U.S. market per year. That
amount could grow if this loophole is not closed, further harming U.S. sellers of re-
fined sugar and possibly threatening the no-cost operation of U.S. policy.
Mexico.
Mexico had been a net importer of sugar for a number of years prior to the incep-
tion of the NAFTA. Nonetheless, the NAFTA provided Mexico with more than three
times its traditional access to the U.S. sugar market during the first six years, 35
times its traditional access in years 7-14, and virtually unlimited access thereafter.
These provisions were negotiated by the U.S. and Mexican governments and con-
tained in President Clinton’s NAFTA submission to the U.S. Congress, which Con-
gress approved in November 1993.
The sugar provisions, as altered from the original NAFTA text, were critical to
the narrow Congressional passage of the NAFTA.
Nonetheless, Mexico is now undermining the integrity of the NAFTA by claiming
the sugar provisions are somehow invalid. This questioning by Mexico has bred deep
feelings of distrust in trade agreements among many American sugar producers.
In addition, Mexico has not complied with a NAFTA requirement to phase out its
tariffs on U.S. high-fructose corn syrup (HFCS). Instead, Mexico raised its tariffs
on HFCS imports to levels approaching 100%. Mexico may also be violating inter-
national trade rules by sanctioning a restraint of trade agreement among Mexican
sugar producers and soft drink bottlers to slow the pace of substitution of HFCS
for sugar in Mexican soft drinks. (The ASA has filed a paper with USTR on this
subject, “Initiation of Section 302 Investigation on Mexican Practices Affecting High
Fructose Corn Syrup,” June 19, 1998.)
219
Statement of the American Textile Manufacturers Institute (ATMI)
ATMI’s member companies range from small, specialized family-owned enter-
prises to diversified, multi-billion dollar public corporations. They and ATMI believe
that United States negotiating objectives in the upcoming World Trade Organization
(WTO) Seattle Ministerial meeting and subsequent “Millennium Round” should be
focused on completing the job that was begun but not finished during the Uruguay
Round negotiations. Full stop.
Key objectives of the Uruguay Round, as is well known, were to bring inter-
national trade in services, agriculture and textiles/apparel under GATT (the pre-
cursor of the WTO) disciplines and to forge international agreement on measures
granting intellectual property protection. Negotiations to achieve these highly,
worthwhile ends were scheduled to last four years and no more. Finally, after seven
years, only one of these objectives was realized: that with respect to textiles/apparel.
In services, agriculture and intellectual property, only ineffectual half measures and
agreement to continue negotiations as part of a “built-in agenda” in these sectors
were adopted. The Uruguay Round, though resulting in nearly a thousand pages of
text ratified on April 15, 1994, remains an unfinished work.
With regard to trade in textiles and apparel, profoundly far-reaching decisions
were taken in the Uruguay Round. Agreement was reached to gradually phase out
quantitative restraints on imports of textiles and apparel which were maintained
since 1974 pursuant to the GATT-sanctioned International Arrangement Regarding
Trade in Textiles (the “MFA”). All such restraints are to be gradually phased out
over a ten-year “transition period” and completely eliminated as from January 1,
2005. It is difficult to overstate the magnitude of this concession by the United
States and the other textile/apparel importing countries. In dollar terms, it is prob-
ably worth more to the exporting countries than all the other Uruguay Round
Agreements. Combine, in addition, other concessions were made and gifts bestowed
on the exporting countries in the form of ever higher annual growth rates for those
restraints which do remain in place until 2005 and greatly increased “flexibility”
provisions which allow countries to exceed the annual limits to which they agreed
until 2005. As a result of these measures, U.S. imports of textiles and apparel, not
including imports from free trade partners Canada, Mexico and Israel, increased
$13.3 billion or 36.5 percent in just the four years since the Uruguay Round Agree-
ments went into effect (1995) through last year.
And, to further liberalize its contribution to world trade, the United States agreed
to tariff cuts on essentially all textile and apparel products.
It is safe to say that no other sector of U.S. industry was required to make as
many concessions in the Uruguay Round Agreements as the domestic textile and ap-
parel industries. But there was supposed to be at least partial recompense in the
form of market opening initiatives by the exporting countries who, for two genera-
tions, have kept their domestic markets closed to foreign competition* while cheer-
fully exporting over $100 billion worth of textiles and apparel annually (1997). In-
deed, Article 1 of the Uruguay Round Agreement on Textiles and Clothing (ATC)
states “Members should allow for . . . increased competition in their markets.” This
is reinforced by language in Article 7: “. . . all (emphasis added) Members shall
take such actions as may be necessary to abide by GATT 1994 rules and disciplines
so as to:
a) achieve improved access to markets for textile and clothing products. . .”
There can be no question but that the United States has fulfilled not only the
spirit, but the letter of this requirement (and has a $13.3 billion increase in textile
and apparel imports to prove it). Most regrettably, however, many of the large tex-
tile and apparel exporting nations have ignored their commitments under the Agree-
ment and have utterly failed to provide meaningful, real market access. (In this con-
text, Pakistan’s removal of knitted ski suits from its list of banned imports is not
meaningful market access). A list of import barriers still maintained by the non-
compliant exporting countries and the results thereof are attached as Exhibits A &
B.
Until the major textile and apparel exporting nations provide a degree of access
to their domestic markets comparable to what the United States has provided, no
further concessions should be made by the U.S. The United States’ negotiating ob-
* Except, of course, Hong Kong and Singapore, which somehow manage to export increasing
quantities of textile products despite rapidly declining employment in the sector. It is possible
that the openness of their markets plays a role in the growth of their exports by facilitating
illegal transshipments.
220
jective in the Millennium Round should be, clearly and simply, to require these re-
calcitrant exporting nations to abide by the ATC — five years after the fact — and pro-
vide real access to their domestic markets. Should they fail to do so, the United
States should then move to deny them further trade liberalizing elements (Article
2) of the ATC. What the United States should not do, what it must not do, in the
Millennium Round, is to agree to further reduce U.S. apparel and textile tariffs. Not
only would doing so damage U.S. production and investment and destroy U.S. tex-
tile jobs, any further tariff cuts would also undermine the preferential access to the
U.S. which Mexico, Canada, and Israel enjoy under our free trade agreements, as
well as any future benefits which may be realized under CBI enhancement legisla-
tion.
Exhibit A
Balance of Trade in Textiles and Apparel
Billion U.S. $—1997
India
Pakistan
Indonesia
Thailand
Malaysia
Philippines
Egypt
Neg: neglibile; not reported
a. ) 1996
b. ) nearly all textiles imported into export processing zones.
Source. World Trade Organization.
M 9.153
Neg.
6.399
Neg.
5.159
<'=■) 1.152
5.695
<b) 1.249
3.616
(b) 1.210
2.590
('=■>1.175
.792
(1=-) .300
221
ExhbtB
Avorege [ar’tson ioxtilc and Appa*‘o‘
Products *
ArDontins
40% * 50%
ASEAN"*
20% - 40%
Braza
40% -100%
China
25% -100%
EflVPt
25% - 60%
India
60% - 70%
Japan
7%-21%
Pakistan
40% - 65%
South Africa
42% - 1 00%
United States*** (ss a basalina)
16%
101*3 U.S. Textile an
Balance (i
i Apparel Trade
^ Mill
Arcientina 1
54
ASEAN"*
-7,100
Brazil
3
China
- 5.800
Eavpt
-460
India
-2,300
Japan
483
Pakistan
-1,400
South Africa
-66
iVgentina
Difficult and cumbersome c^fficate of origin rules; long delays at customs:
difficulties dealina w/customs officials.
ASEAN
Some problems w/customs agendes in some countries mentioned: delays,
art>ifr3ry valuations, cumb^some doc^maitation requirements. Numerous
export and domestic industry subsidies.
Brazil
Difficult import licensing procedures; valuation problems when dealing with
BrazSian customs
China
Non-transparent customs valuation procedures - use of unofficial reference
price lists; importing of textile products restricted to foreign trading
companies (FTC) which are also producers of similar products; distribution
channels dominated by state cxinfrolled enterprises; discriminatory
technical/Quaiitv testina rules. Export and domestic industry subsidies.
Egypt
Complex and excessive customs rules and procedures; arbitrary customs
valuations: time consuming customs clearance procedures; bans on
importation of appard and some textile producte; excessive technical
certification requirements; difficult, costly marking requirements for textile
products. Export and domestic industry subsidies.
India
Bans and/or restrictiems on the importatiCHi of most textile and all apparel
products; discriminatory and non-fransparent licensing procedires; complex,
difficult and time consuming customs clearance procedures; extremely
difficult and costly marking rec^irements. Numerous export and domestic
uidustry subsidies.
Japan
Complex technical barriers (quality, certification and labeling requiremente).
Distribution system gives preferences to Japanese companies.
Pakistan
Textile and apparel products cg\ restricted import lists; export subsidies for
domestic suppliers (part, cotton subsidies); complex and time consuming
customs procedures.
South Africa
Arbitrary customs valuations.
United States (as a
baseline)
Quota system in place (10%of quotas fill^ In 1998). NOTE: U.S. will not
haveapynon-tariffban'iersaf^rJan. 1, 2005, consistent the Agreameni
on TextHes and Clothing of the WTO.
*lriclucies taxes, fses and other misc. enlarges for imported products.
"Average tariff rates for Philippines, Thailand, Indonesia and Malaysia. Country averages: Thailand (25% - 50%).
Indonesia (10% '30%), Philippines {10%-20%). Malaysia (20%- 40%).
‘"Department erf Commerca
Sources: “1999 National Trade Esfmate Report on Foreign Trade Barriers,” USTR; “Market Access Study to Idenfify Trade Barriers
Affecting the EU Textiles Industry in Certain Third Country Markets," EU Commission, 1999; "The Market for U.S. Cotton Textile and
A^)parel Products in India," Economic Consulting Sarviras, 1998; “TheMarket for U.S. Cotton Textile Prcsducts in indonesia,"
Ecoixamic Consul^ng Services, 1998; “The f^talcet for U.S. Cotton Te>®e Producte in the Philippines," EcorKsnic Consulting
Services, 1998: Werner infotex Trade Database.
statement of Association of International Automobile Manufacturers, Inc.,
Arlington, Virginia
The Association of International Automobile Manufacturers, Inc. (AIAM), is the
trade association representing U.S. subsidiaries of international automobile compa-
nies doing business in the United States. Member companies distribute passenger
cars, light trucks, and multipurpose passenger vehicles in this country and export
them outside the United States. Nearly two-thirds of the vehicles they distribute
here are manufactured in the New American Plants. International automakers sup-
port American jobs in manufacturing, supplier industries, ports, distribution cen-
ters, company headquarters, research and development centers, and automobile
dealerships. AIAM also represents manufacturers of tires and other original equip-
ment with production facilities in the United States and abroad. AIAM submits this
222
written statement for record of the hearing held by the Subcommittee on Trade on
August 5, 1999, on the subject of U.S. Negotiating Objectives for the WTO Seattle
Ministerial Meeting.
1. Reduction of Tariffs on Motor Vehicles and Parts
The rates of duty on passenger vehicles exported to the United States, the Europe
Union, Japan and Korea now generally range from zero to 10 percent. However, in
many countries the rate is 20, 30 or even 40 percent. Rates of duty on vehicle parts
vary widely and in many cases are unnecessarily high. Automobile manufacturing
is now a global industry which has experienced dramatic restructuring in recent
years. The high costs of research, engineering, manufacturing technology, and mar-
keting, among other factors, have influenced the industry to become truly inter-
national, with worldwide companies that source parts from across the globe and as-
semble vehicles in many countries. The notion of a national car or a strictly domes-
tic automobile manufacturing industry does not square with modern economic re-
ality. Protecting a national industry that is not competitive does little good for the
citizens of any country. In the near term, at least for the developed world, progress
toward a zero duty rate would be an excellent goal for the new WTO round. It would
encourage competition and lead to lower prices, higher quality, and wider consumer
choice. For less developed countries, such a goal may take longer to achieve, but it
should nonetheless be an objective advanced by the WTO.
2. U.S. Light Truck Tariff
A particularly severe and unjustifiable barrier to trade is the 25% ad valorem
duty that the United States imposes upon light trucks. This duty is an obsolete rem-
nant of the so-called Chicken War between the United States and then-European
Economic Community in the early 1960’s. It has no economic justification and re-
stricts trade unnecessarily.
This duty has been the subject of long-standing controversy and political debate.
It has generated strong feelings within the United States and intense discussions
with our trading partners. Abolishing the 26 percent duty should be the long-term
goal of the United States. In the short term, action by the United States to reduce
it to a level such as 4 percent, which is now the duty on trucks between five and
twenty metric tons in gross vehicle weight, would be a very positive step that would
serve U.S. interests. It would lower consumer costs and stimulate competition. Light
trucks have become extremely popular in the United States. For many families, they
fill the role of a second car. American consumers would benefit significantly from
the increased competition and lower prices that should result from eliminating the
Chicken War tariff.
This anachronism is an example of the lasting negative effects of retaliatory tar-
iffs. While the United States may wish to accomplish a tariff reduction in the con-
text of bilateral or multilateral concessions, U.S. negotiators will have to take some
initiative for American consumers to gain this benefit. That is because the cir-
cumstances and interested parties involved have changed since 1963. The variable
levy imposed by the EEC on imports of frozen poultry from the United States (an
effective embargo of such imports) has been eliminated. Changes have also taken
place in the structure and locations of light truck manufacturing. What has not
changed are the artificially higher prices paid by American consumers for these pop-
ular vehicles.
3. Technical Barriers to Trade
Article II of the Agreement on Technical Barriers to Trade (Agreement) lays down
certain basic principles concerning the use of technical regulations. Eor example,
such regulations must satisfy the principle of most-favored-nation treatment. They
must conform as much as possible to international standards when such standards
exist. They must abide by the principle of transparency, so that other countries may
readily become acquainted with them.
Perhaps most importantly, the Agreement provides that technical regulations are
not to be prepared, adopted, or applied with a view to, or with the effect of, creating
unnecessary obstacles to international trade. Technical regulations shall therefore
not be more trade-restrictive than necessary to fulfill a legitimate objective, taking
account of the risks non-fulfillment would create.
Especially if tariffs on motor vehicles are to be further reduced or eliminated,
AIAM urges that special attention be paid to the technical regulations in the auto-
motive sector. U.S. exports of motor vehicles are increasing, and it is therefore im-
223
portant that they encounter no unjustifiable non-tariff barriers like protectionist
technical regulations.
If such regulations are identified, their elimination should be a condition of the
U.S. willingness to reduce or eliminate its tariffs on motor vehicles. At the very
least, such regulations should be amended to conform to international standards.
4. Add and CVD — Causation
At present, both U.S. and international laws provide that the imposition of anti-
dumping (ADD) and countervailing duties (CVD) requires a determination that the
dumped or subsidized imports are causing material injury or the threat of such in-
jury to a domestic industry. But neither U.S. nor international law specifies the de-
gree of causation that must be found to justify the imposition of ADD or CVD.
The pertinent U.S. law is the Tariff Act of 1930, as amended. Section 731(2), in
the case of ADD (19 U.S.C. Sec.l673(2)), and Section 701(a)(2) in the case of CVD
(19 U.S.C. Sec. 1621(a)(2)), both provide that the U.S. International Trade Commis-
sion (ITC) shall determine whether a U.S. industry is materially injured or threat-
ened with material injury (by reason of imports) of the merchandise in question.
Likewise, Article 3.5 of the Agreement on Implementation of Article VI (ADD Agree-
ment) and Article 15.5 of the Agreement on Subsidies and Countervailing Measures
(CVD Agreement) both provide that,”It must be demonstrated that the dumped [or
subsidized] imports are, through the effects of dumping [or subsidies], causing in-
jury within the meaning of the Agreement.”
The absence of a specification of the degree of causality has allowed the ITC to
take one of two approaches. The first is not to address the issue and simply assume
that the test of causation is met. The second is to address the issue but dilute the
test so that any causal connection is deemed sufficient. In either case, the test of
causality is rendered insignificant, thereby allowing the imposition of ADD and CVD
without objective justification.
The result of doing so is, at one and the same time, to give the domestic industry
a remedy it does not need and to impose upon consumers a measure that unneces-
sarily hurts them. The ADD and CVD laws thereby become contrary to the national
interest, since the costs are not offset by any benefits.
Accordingly, AIAM proposes that both the U.S. laws and the international agree-
ments be amended to provide that the dumped or subsidized imports must be a
cause greater than any other cause of material injury or the threat thereof to the
domestic industry. If one or more causes are each greater than the dumped or sub-
sidized imports, imposing ADD or CVD is not justified, since they will not address
the more significant cause or causes of the domestic industry’s injury.
5. Agreement on Safeguards
The Agreement on Safeguards (“SG Agreement”) should be amended to establish
that, in order to justify the imposition of safeguard measures, increased imports
must be a “substantial cause” of serious injury or threat. “Substantial cause” should
be defined to mean a cause that is important and not less than any other cause.
Such an amendment would be consistent with the nature and purpose of the SG
Agreement, and would make the SG Agreement consistent with U.S. law.
The SG Agreement sets forth the rules for applying safeguard measures pursuant
to Article XIX of GATT 1994. Safeguard measures are “emergency” actions that per-
mit WTO members to suspend WTO concessions in cases in which increased imports
of particular products are causing or threatening to cause serious injury to the im-
porting Member’s domestic industry. Such safeguard measures can take the form of
quantitative import restrictions or of duty increases to higher-than-bound rates.
Since safeguard measures are exceptions to WTO negotiated concessions, they
should only be taken in extraordinary circumstances. This is reflected in part in the
current requirements of the SG Agreement that there be increased imports that
cause or threaten “serious injury.” The SG Agreement defines “serious injury” as
significant impairment in the position of a domestic industry. “Threat of serious in-
jury” is threat that is clearly imminent as shown by facts, and not based on mere
allegation, conjecture or remote possibility. Safeguard measures are not to be adopt-
ed lightly, since they are exceptions to the general rule of trade liberalization that
form the basis of the WTO.
The current causation standard in the SG Agreement, however, is inconsistent
with the exceptional nature of safeguard provisions. The SG Agreement only re-
quires that there be a causal link between serious injury and imports, and that in-
jury caused by other factors should not be attri 
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